Breakoutwatch.com Analysis of Cup and Handle Trading Results for 2018

Looking back at the suggested trading strategies for 2018¹ it is easy to see now that the parameters proposed for trading cup and handle pattern stocks were too conservative.

Results Using 2018 Suggested Strategies

Buy on Alert 2018 Buy on Breakout Alert

The Buy on Alert Strategy would have returned 27.5%. Note that the strategy recommended not trading while the market trend indicators were negative which conserved profits from mid-September on. During the same time period the S&P 500 gave up all its gains for the year.

Buy at Open 2018 Buy on Confirmed Breakout

The Buy at Open strategy would have returned 12.9%. Similarly the strategy recommended not trading while the market trend indicators were negative which conserved profits from mid-September on. During the same time period the S&P 500 gave up all its gains for the year.

With the benefit of hindsight, it is clear that a much less restrictive set of criteria could have produced vastly superior results. I'm grateful to a subscriber who took advantage of the cup and handle backtest tool to discover these alternative strategies.

Buy on Breakout Alert

The composite image at right (click for full size) shows backtest results for 2018 with a significantly different set of parameters. The key differences to the parameters used in the Buy on Breakout Alert results above are:

maximum BoP: $100
Minimum Volume: 100K
Use market trend: No

This backtest shows a profit of 324%!

Interestingly, trading did not stop while the market signals were negative. Although there were small losses, continued trading delivered further profits.

Buy on Confirmed Breakout

The composite image at right shows an alternative strategy for buying at the next open when a breakout is confirmed, based on 2018 data. The advantage of this strategy is that all trading orders can be placed either after the market closes or before it opens.

The key differences to the parameters used in the Buy on Confirmed Breakout results above are:

maximum BoP: $100
Minimum Volume: 100K
Use market trend: Yes
Confirmation Volume Ratio: 1.0
Minimum RS: 80 (cf. 92)

Conclusion

The analysis above goes to prove the adage "past performace is no guarantor of future results". The suggested strategies for 2018 were based on market performance in 2017. Market volatility that year was extremely low with only a 2% average daily trading range. We recognized a change in volatility in late March 2018 and adjusted our suggested strategies to use ATR rather than trailing stops but did not broaden the scope of the other parameters resulting in a narrower selection of stocks to consider.