Semi-Cup Trading System by Cone

Semi-Cup Trading System

In the April 2011 issue of TASC magazine, Dr. Siligardos presented an algorithm to detect cups (as in "cup and handle") early in their formation. As such he called the pattern a "semi-cup".  I improved the algorithm (I think) and added backtesting capability for Semi-Cup patterns as demonstrated by this script.  Due to the use of the 30-week moving average, I recommend running this particular Strategy on Daily or Weekly bars. 

Trading Rules

  • Go long when SemiCup CupStatus = CupStatus.FormingCup and Price (Close) is above 30-week sma
  • Install an initial stop at the L0 level, below which the Semi-cup is determined to have "failed"; CupStatus.Failed
  • When price exceeds the L4 level, raise stop to breakeven
  • When price exceeds L5 (the peak on which the Semi-cup is based) raise stop to the L3 level or 30-week ma, which ever is greater. 

Getting in earlier
Before entering a Position this Strategy waits for a "L2" breakout, which is an indication that a "cup" is actually forming.  Nonetheless, a Semi-cup is often identified when price is very close to is base L0 level.  You could, for example, enter larger Positions (using Risk Stop sizing) closer to L0 to take advantage of the move to and above L2.  The trade-off is accepting more Semi-cup failures on a closing price below L0.  Note that since the detection algorithm re-enters CupStatus.Search immediately after a failure, the same Semi-cup will most often be reformed at the new base level, at which time an aggressive trader could take on a new Position again.

Notes and more documentation:   

  1. Requires TASCIndicators Extension 2011.4.0.1
  2. Identifying Cup Formations Early in the Wiki.

  3. SemiCup Pattern Detection has the TASCIndicators API documentation for the SemiCup classes used in this script.

Author: Cone
Category: Chart Patterns
Creation Date: 3/24/2011
Licence: Freeware
Availability: Globally
Instructions for Script Download
  1. In Wealth-Lab client software, open the Strategy Explorer (Ctrl+O)
  2. Click the "Download..." button
  3. Click "Begin Download"