Encyclopedia of Chart Patterns. Thomas N. Bulkowski

Читать онлайн книгу.

Encyclopedia of Chart Patterns - Thomas N. Bulkowski


Скачать книгу
samples with upward volume trends, which is probably why the 35% gain is so tiny. The difference between the two values will shrink with more samples.

      Are you a swinger? Swing trader, that is. If so, then the following table is just for you. With this pattern, you can use your software to calculate at what price D would need to appear to complete the bat. Then you can wait to see if it appears.

      Table 5.3 Price Move after Pattern End

Description Bull Market
How often does price turn at D? 91%
How many rise to point A? 58%
How many rise to point B? 86%
How many rise to point C? 64%

      Table 5.3 shows how price behaves after point D.

      How often does price turn at D? I found price turning upward at D 91% of the time, which is wonderful. It's exciting. Swing traders will be delighted when I share the news, I'm sure.

      How many rise to…? Gauging performance using another method, I checked how often price climbed to the various turns in the pattern.

      For example, the closest turn to D is B. I found that price climbed to B 86% of the time. At the top of the pattern is point A. How many climbed to A? Answer: 58%.

      Even though just over half of bats saw price reach A, with an average rise of 44%, it's clear many bats see price rise substantially to overcome the stinkers trying to pull the results down.

      Hopefully, you can use these numbers as guidance to help you trade this pattern better by estimating how far price might rise.

      Figure 5.4 shows a sample trade that Scott made. Scott has been a longtime admirer of Apple products, so when his software flagged a bullish bat, he took an interest in the stock. I show the bat as turns XABCD.

      “I measured the height of the pattern,” he said and pointed to the chart. From the peak at A (60.96) to the low at X (50.61), the height was 10.35.

      His statistics on bullish bats showed there was a 60% probability that the stock would climb to 71.31, which is the height added to peak A. (The 60% number comes from the traditional way of gauging chart pattern performance using the measure rule. Price reaches the target 60% of the time when you add the height of the pattern to the top of it.)

      “You might not believe this, but I really didn't care about the answer. I wanted to hold the stock for the long term, but having that background info is reassuring.”

      Scott is also a fan of trendlines. For entry, he drew a trendline skirting the peaks going down to turn D. The day after D, the stock closed above the line, signaling a buy (with the belief that the bearish bat had found a bottom at D).

Graph depicts a sample trade using a bullish bat.

      Figure 5.4 This is a sample trade using a bullish bat.

      “I placed a stop below the low at D, and below 52.00. Know why?” Before I could answer, he said, “Because at 51.83 it's seven cents below D and it avoids the round number 52. That's where others might place their trades.”

      The stock cooperated and moved higher, forming a slightly upward curving trend. I show that on the chart (log scale) as a series of three lines rising toward E.

      When the stock closed below the trendline near E, he placed an order to sell the stock at the open the next day. He received a fill at 87.14 for a gain of 33.48 a share, or 62% (not including commissions).

      “I got lucky on this trade,” he told me.

      “Why?”

      “Two reasons. First, because the stock might not have turned upward at D. And second, I forgot to raise my stop.”

      That's not always a bad thing, especially for long‐term holds. If you're swing trading or short‐term trading, then consider using a trailing stop, one that price stalks as it moves upward.

      Another lucky factor was how the stock behaved with price rising in a near straight‐line run up to E. Although the stock retraced after E to 74.60, it went on to a new high at just over 100 in September 2012. The stock need not have dropped far at E before moving higher, too. Still, for a relatively short‐term trade, the exit was timely and the entry was delicious, too. Isn't there a red delicious brand of apple? Get it? He traded apple stock…

Schematic illustration of Big M.

      RESULTS SNAPSHOT

      Appearance: Two peaks near the same price form a pattern that resembles an M.

       Downward Breakouts

Bull Market Bear Market
Reversal or continuation Short‐term bearish reversal Short‐term bearish reversal
Performance rank 8 out of 36 10 out of 19
Breakeven failure rate 14% 8%
Average decline 17% 22%
Volume trend Downward Downward
Pullbacks 67% 63%
Percentage meeting price target 55% 58%
See also Bullish bat, double tops

      The big M chart pattern is a variation of a double top, a twin peak pattern with a tall left side. In well‐behaved patterns, the right side will also be tall so that the pattern resembles a tall M. The pattern confirms when price closes below the valley between the two peaks. We'll see a picture of the pattern in a moment.


Скачать книгу