2009issue C081-69
Constructing rounded and double-top short setups
Build an inverted-cup-and-handle on OHLC in three checkpoints: lock a rounded or inverted-V cup, keep the handle below the cup rim, and treat a break of the handle low as the only confirmation of a sell-short hypothesis.
- Lock the cup first as a saucer, oval, or inverted-V topping outline on OHLC before any handle is drawn.
- After the first bounce from a low, an unconfirmed double-bottom look is a valid handle only if it never rises above the top of the cup.
- The construction is complete only when price breaks through the handle low, and that break is the confirmation that generates the sell-short hypothesis.
- The short setup is advised only below the 200-period moving average when the primary market trend is down, and prior resistance is scanned instead of a height-based measuring rule.
What this construction is
The inverted-cup-and-handle is a topping construction. It begins as a rounded or inverted-V cup, adds a handle that must stay below the cup top, and is treated as complete only on a break of the handle low.
This article walks through that build on OHLC price structure. Editorial framing treats the same historical workflow as three checkpoints: lock the cup outline, require a valid handle, then wait for the handle-low break before any sell-short hypothesis is generated.
Lock the cup outline on OHLC
Editorial checkpoint one is to lock the topping outline on OHLC before any handle is added. In this construction that outline is the rounded top: a saucer- or oval-shaped topping structure that forms the cup of the inverted-cup-and-handle.
The right brim of the cup may miss or undercut the left brim. An inverted-V outline can still satisfy the same specifications as a rounded or oval cup. No handle is drawn until this cup is in place.
Keep the handle below the cup rim
After the first bounce from a low, a failed retest can look like a double bottom. If that second low is not confirmed, the bounce is not a completed double-bottom signal. It becomes the handle of the inverted-cup-and-handle.
That incomplete two-trough look is the double-top-and-bottom role in this build. The handle is valid only if it does not rise above the top of the cup. Variance on the right brim of the cup is otherwise allowed. If the bounce clears the cup rim, the construction is invalid.
Confirm only on a handle-low break
The construction is complete and a sell-short hypothesis is generated only after price breaks through the low of the handle. That downside breakout is the only confirmation that turns the drawing into a short hypothesis.
Until the handle low is broken, the outline remains a sketch rather than a completed setup.
How the short hypothesis is placed
A working short hypothesis places the sell-short trigger a few cents below the handle low and the cover stop above the high end of the handle.
Editorial reading: the stop above the handle high is how the short hypothesis is made falsifiable. It is not a claim that the handle will hold.
Regime filter and resistance scan
The construction is advised only when the stock is below its 200-period moving average and the primary market trend is down.
A height-based measuring rule is treated as ineffective for this pattern. Prior resistance is scanned instead of projecting a target from cup height.
All readings on this track · 32 readings
- 1988Reaction length as a trend integrity test
- 1991Sold-out double bottoms as a three-gate inventory test
- 1991A breadth classifier for V-bottoms and W-bottoms
- 1991Precomputed price-ratio clusters and double-top tests
- 1992Bond turning points as a regime check on equity double tops and breakouts
- 1992Commodity-bond ratio as an equity regime overlay
- 1992Gold lead confirmation for commodity-index turns
- 1994Constructing the thousand-line advance-decline indicator
- 1995Evaluating zero-line patterns on a breadth-price oscillator
- 1996Constructing double tops from a resistance retest to a trough break
- 1996Four-stage double-bottom construction
- 1998Double-bottom confirmation and stop placement
- 2000Two-bar reversal construction
- 2001Constructing double tops from failed resistance retests
- 2002Eve-Eve double bottoms: width, confirmation, and overhead resistance
- 2002Constructing Eve-and-Eve and classic double bottoms
- 2003Eve-Adam double bottoms as a two-step classroom test
- 2003Shape contrast then breakout confirmation in Adam and Eve double bottoms
- 2003Reading cyclical bottoms inside secular bear regimes
- 2004A case study of the shark-attack Fibonacci retracement
- 2004Confirming index turns with envelopes, divergence, and breadth
- 2005A five-wave euro/dollar case and the support that still had to fail
- 2007Constructing commodity seasonal indexes for regime context
- 2009Constructing rounded and double-top short setups
- 2010Hourly pattern entries, exits, and abstention as one playbook
- 2016Ugly double bottom after a yearly low
- 2016An unconfirmed stock double bottom next to a confirmed index
- 2016Constructing a range-midpoint moving average
- 2017Evaluating whole-dollar delays on pattern breakouts
- 2018Volume-confirmed bottoms and breakouts with moving averages
- 2018Evaluating double bottoms with a locked stochastic confirmation
- 2019Forex pairs as relative value: yield spreads, support, and a double bottom