David Landry

Submitted by traderx:

Dave: Are there any general rules to taking profits on cup-and-handle trades?

Dave Landry:

I would trail the stops and let the market take me out. The good thing about cups and handles is that they often lead to large moves. The best way to capture that would be to trail the stops with say a 2 bar stop beneath the lows (lowest low of past two or three bars).

Submitted by zzcan1:

Do cup-and-handle patterns work inverted (on the short side of the market)?

Dave Landry:

Jeff has recently shown me that the inverted cup and handles are great for shorting. I’ve been using inverted cup and handles and calling them pullbacks from lows.

Submitted by Moderator:

Welcome to the forum, subscribers! Keep your questions coming.

Submitted by Moderator:

Dave, have you found cups and handles to be valid patterns in both stocks and futures?

Dave Landry:

I think a pattern is pretty much a pattern regardless of the underlying. However, because of leverage, Iíve always found bigger picture discretionary patterns harder to trade in futures. Iím often right, but I get stopped out with a loss right before the contract takes off.

Submitted by Trial User:

How long should the cup and handle pattern be?

Dave Landry:

Ideally, I like to see a 1-2 week sell off, a 2-3 week base, a 1-2 week rally and a 3-7 day pullback (handle).

Submitted by Moderator:

Welcome to the TradingMarkets.COM Live Forum, featuring Dave Landry.

Submitted by Trial User:

Dave: Should the left side high be equal to the right side high for a complete cup and handle? Thanks

Dave Landry:

Ideally, yes. That way the breakout takes out a double top. If itís lower than the left side then you are dealing with overhead resistance. If itís higher than some of the move out of the cup has already occurred. If I canít have a perfect pattern, Iíll choose the one where the right side is higher and treat it as a pullback.

Submitted by Moderator:

Are there any other market conditions (if any) affect the pattern or determine if a signal is taken or not taken?

Dave Landry:

Iíve done in depth studies on the indicators on the Market Bias page and helped create the CVR III, so I really believe in them. I always check the signals when developing a trading plan whether it be cups and handles, pullbacks or any other pattern.

Submitted by Bill23:

If you had a choice, would you rather trade cup-and-handle patterns or pullbacks?

Dave Landry:

In reality, the right side of the cup is a pullback, so in my opinion, Iíd rather trade cup and handles because your getting both the pullback and the bigger picture cup pattern. It is a matter of personal preference though, I know that Jeff would probably agree with me and Kevin and Larry would prefer strong pullbacks.

Submitted by Trial User:

When you purchase stocks on the basis of cup and handle patterns, do you also look at other indicators like RS, EPS, ROE, etc?

Dave Landry:

I’m a technical trader so I ignore the EPS. I do like trading the strongest stocks so I would consider momentum indicators such as RS.

Submitted by ttagg52332@aol.com:

Would it make sense on an entry position to back it up with a put option?

Dave Landry:

It depends on the implied volatility of the put (in other words how expensive the put is). In general, I never find them “cheap” enough.

Submitted by cooper:

You’ve mentioned running cup-and-handle patterns in your commentary. Can you explain them?

Dave Landry:

Sure, the market has a strongly uptrending 50 day moving average. The stock then sells off and cups right at the 50. The stock is so strong the the correction does not pull the stock below the MA. The stock then rallies (right side of cup) and sells off slightly (pullback).

Submitted by Moderator:

wgw

Submitted by danilo99:

Have you observed success with this pattern in volatile internet sector stocks of late?

Dave Landry:

Overall, (recently) they have been too choppy to form the pattern. However, some have formed “micro” cups.

Submitted by Trial User:

You said you would buy on a breakout above the right top (which is equal to left top). Or do you buy when the handle reverses to the upside? Thanks.

Dave Landry:

I like to buy when the handle reverses to the upside. So you could use a 1-3 bar high (in the handle) as your entry.

Submitted by Trial User:

When you say that you treat the higher right side as a pullback, does that mean you are shorting it?

Dave Landry:

NO, I mean that it looks more like a Pullback pattern than a cup and handle.

Submitted by Moderator:

Dave, can you briefly describe how to define or identify a cup-and-handle pattern?

Dave Landry:

Essentially the pattern forms when the market sells off (the left side of the cup), bottoms or bases (the bottom of the cup), rallies (the right side of the cup) and then sells off slightly, forming the handle. So it looks like a cup with a handle.

Submitted by Trial User:

When the market falls below the 200-day moving average, is it wise to purchase the stock if cup and handle patterns are present. Pete.

Dave Landry:

Ideally, you want the overall market on your side. However, in down markets there are often good buys and vise versa. I’d take it on a case by case basis. Also, the overall market sometimes makes a cup and handle under the 200 (last Oct. and possibly after the Gulf War). These can lead to powerful moves.

Submitted by Trial User:

I mostly write covered calls. Do you have any advise for me regarding C&H?

Dave Landry:

I not an options expert, but don’t you want the stock to go sideways so you can collect your premium? If that is the case you might want to avoid bullish patterns.

Submitted by Trial User:

Dave: Do you prefer stocks at a specific price range using c and h patterns? Thanks, Pete.

Dave Landry:

For short term trading, you really need a stock to be about $30 or higher (I learned this from Jeff). It’s much easier for these stocks to move a few points than a lower priced stock. If you are looking for a bigger/longer term move, you could consider lower priced stocks (if the pattern is there).

Submitted by Trial User:

Can you give us two or three samples of stocks that have gone through a cup & handle curve recently.

Dave Landry:

I haven’t seen too many recently. This is because the choppy action of the indices is reflected in the stocks.

Submitted by bill23:

I enjoyed your article on short-selling on the site. Where does short-selling fit into your overall trading plan?

Dave Landry:

Thanks! I’ll short a stock (or future)if the pattern is there. I really have no preference. In fact, my biggest gains often come from the short side because things are torn down much quicker than they are built.

Submitted by Moderator:

The forum is now closed. Thanks to all our members and to Dave Landry for making this such a great learning experience. The forum will be archived for future reference for all our members. Just click on the link on the main Live Forum page to view the archived transcript.

Dave Landry:

Submitted by Moderator:

Can you describe when positions are triggered and where you place protective stops?

Dave Landry:

I wait for the market to “prove” itself by pivoting back up. So if the handle keeps going down, I avoid it. In general, I trade it like a pullback, place my entry above the recent 1 or 2 day high and my protective stop below the low of the handle.

Submitted by Moderator:

What role do relative strength (RS) and volume play in trading cup-and-handle patterns?

Dave Landry:

For volume: Price is first and foremost most important. I would never rule out a price pattern based on volume alone. I do like to see what I think is a “normal” reaction in volume. For instance, in the left side of the cup, one would expect an increase in volume as traders dump the stock. During the bottom of the cup I like to see volume dry up as investors forget about the stock as it trades sideways. Once the stock begins to break out the base, I like to see an increase in volume as traders pile on. Finally, in the handle, I like to see volume dry up during a normal correction.