A five-by-five grid that accepts or rejects a cup

The cup as a spoken shape

A rounding bottom, also called a cup, is described as a decline to a low, a quieter sideways stretch, then an advance back toward the prior high. That quieter middle is base building: the stretch from the low after the first decline to the start of the right-side advance, treated as a constructed pause rather than a finished signal.

Sometimes a short, low-volume pullback appears after the right rim, before an upward break of the right-rim high. That optional pullback is a cup with handle. The identification rules treat the handle as extra context, not a required cell.

Shorter, steeper recoveries with a more volatile middle are sometimes called tower bottoms. They are still grouped with cups when that middle is not very volatile, even though the sides form faster than a textbook multi-week cup.

Why two charts of the same series can disagree

The same price series can look more or less cup-like depending on whether the y-axis is logarithmic or arithmetic, and also depending on bar versus line style, periodicity, and the chart width-to-height ratio.

A semilog chart uses arithmetic time and logarithmic price. The identification procedure works on natural logs, so a cup on this scale usually remains a cup on an arithmetic scale, but not always the reverse.

How the five-by-five grid is built

The identification procedure first replaces each bar's high, low, and close with its natural logarithm. It then takes the highest high of the last 20 bars as the right rim and walks backward to the first prior bar whose high is at or below that rim after a bar that exceeded it.

Between those two time anchors the lowest price becomes the floor. Five equal log-price bands and five equal time bands then form a 25-cell grid. Each cell height is one-fifth of the log-price span. That rectangle is the five-by-five grid used for the occupancy test.

Which cells must stay empty and which must be visited

Pattern recognition, in this construction, is a mechanical scan that tags whether recent bars occupy and leave empty the required cells of the grid over a fixed lookback.

A candidate is treated as cup-like only if designated upper-side cells contain no closes and if at least one pair of specified lower cells each contains a bar low. A closing-price blank is a grid cell that must contain no closes. Those empty upper cells keep the cup hollow instead of filled by mid-range trading, and the required lows make sure the trough is actually visited.

Volume is not part of the occupancy rules.

What the scan keeps, and what later bars can take away

The mechanical test is meant to scan large universes on daily and weekly bars and to keep hits on a watchlist, because later bars can drop a name. Many individual cups fail early in long declines. Cups that appear as a broad decline starts to recover are treated as names to study if the tape turns up.