How to Trade the Cup & Handle Pattern

Trade set-up alert on $PANL stock, which just broke out to 8 year highs.

The Cup & Handle pattern, popularized in How to Make Money in Stocks by William O’Neill, offers up a GREAT trade set-up.

Below is a real life example.

Find Growth Stocks Ready to Breakout

O’Neill, founder of Investors Business Daily, tracked growth stocks only. Think of him this way: Buffet to Value Stocks is like O’Neill to Growth Stocks.

He noticed that when growth stocks bump up against highs, they form “base” pattern that sets the stock up for a MAJOR breakout rally.

The most popular base is the Cup & Handle pattern.

Here is a perfect example of $PANL, a stock with sound growth prospects.

Notice this stock is bumping up against 8-year highs. Friday’s close was the highest close since October, 2014.

• Cup - in 2021, price the October, 2014 price level and pulled back into 2022, then rallied into February — forming the CUP.

• Handle - notice price pulled back from February highs to the up trend line. then rallied — forming the HANDLE.

• This week, price finally broke out above recent resistance, signaling a buying opportunity.

How to Trade the Cup & Handle

If you notice on the chart, there are two ways to trade it.

• Aggressive traders will buy on the breakout, i.e. at 3:59pm yesterday.

• Conservative traders will wait for confirmation of the breakout, and buy on the pullback (at the trendline, at prior resistance, or upon seeing a candlestick)

Remember, prior resistance becomes future support. You will see a lot of traders step into the market on a pullback.

Use Free Screeners to Find Cup & Handle Breakouts

If you head over to Finviz and check out their stock screener, you can find stocks potentially forming a cup and handle.

I’ve set the parameters for a double top search for you, just click here.

Technically, all cup and handle breakouts at some point are a double top pattern. If you see a pullback, wait for a rally and third test of the high…

Other paid screeners allow you to search for the cup and handle directly.

For a more detailed description how to identify this pattern, check out the book.

Billy O is a LEGEND.

Happy Trading 😊

p.s. Full disclosure, I own this stock and absolutely love it. I plan to buy more on the pullback, at the support levels (uptrend line or horizontal blue line which now becomes support)