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"Trading without Fear" is a book by Thomas N. Bulkowski that analyzes chart patterns in financial markets, offering insights from the author's trading failures and providing an Index of Chart Patterns and trading guidelines.
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Key Points
- "Trading without Fear" by Thomas N. Bulkowski is a book about chart patterns in financial markets.
- The book includes an Index of Chart Patterns and provides guidelines for trading.
- Different chart patterns are discussed, such as ascending broadening wedges, cup formations with handles, flags, pennants, complex head-and-shoulders patterns, island reversals, and ascending triangles.
- The importance of stop-loss placement and using indicators in trading is emphasized.
- Statistical data on different chart formations and their failure rates are provided.
Summaries
36 word summary
"Trading without Fear" is a book by Thomas N. Bulkowski that examines chart patterns in financial markets and provides insights from the author's own trading failures. It includes an Index of Chart Patterns and trading guidelines.
43 word summary
"Trading without Fear" by Thomas N. Bulkowski is a book that explores chart patterns in financial markets. The author shares personal experiences and lessons learned from failures in stock trading. The book includes an Index of Chart Patterns and offers guidelines for trading.
361 word summary
"Trading without Fear" by Thomas N. Bulkowski is a book about chart patterns in financial markets. The author shares their personal experience of starting in stock trading and learning from failures. The book includes an Index of Chart Patterns and provides guidelines for trading
Place stop-loss above highest high, lower it to next minor high or apex. Sandra paper traded stocks before inheriting money and found a perfect trade using the measure rule. Ascending broadening wedges have certain characteristics and patterns. Short-term bearish
Cup formations with handles were studied, while cups without handles were excluded. The maximum depth of a cup was set at 50%, but a range of 12% to 33% was also considered. Important factors for cup-with-handle patterns include
Table 13.4 displays statistics on double top volume and breakout volume. Flags and pennants are short-term chart patterns that signal the halfway point in a price trend. Flags have price action bounded by parallel trendlines, while pennants have converging
The text discusses the characteristics and trading tactics for complex head-and-shoulders patterns. It highlights that the relationship between right shoulder height and gains is random and that most patterns have horizontal necklines. Breakout statistics show that 97% have upward break
Island reversals occur during a retrace in a downtrend. Island tops have a likely decline. Island reversals show reluctance to continue breakout direction. Only 43% of second legs exceed the first leg's decline. A large first leg decline
In 150 stocks, I discovered 443 chart formations, with 54% being consolidations and the rest reversals. The failure rate is 18%, just below the reliable threshold of 20%. Long-term uptrends can indicate trend reversals
Ascending triangles are discussed, emphasizing the importance of having at least two minor highs and two minor lows. Breakouts two-thirds of the way to the apex are the most powerful. After an upside breakout, volume tends to spike the following day. Descending
The excerpt discusses trading without fear and emphasizes the use of indicators in trading. It includes a sample trade experience of a trader who made a successful investment using the upside weekly reversal pattern. The text also provides statistical summaries of different formations and their failure rates.
8025 word summary
Trading without Fear is a book by Thomas N. Bulkowski that is part of the Wiley trading advantage series. It covers the topic of chart patterns in financial markets. The book is copyrighted and published by John Wiley & Sons, Inc. The author expresses
Trading stocks and investing seemed like an easy way to get rich. However, after losing to a colleague who randomly selected stocks, the author realized they needed to learn more. They started paper trading and eventually opened a brokerage account. Their stock portfolio grew,
This book includes an Index of Chart Patterns to help identify patterns. Each pattern is associated with a chapter. The book provides guidelines for trading and focuses on failures and statistics. Using chart patterns is important but requires experience. The author is grateful to those who
During the holidays, investors buy stocks at bargain prices. The stock eventually declines due to poor holiday sales and distribution problems. Analysts advise selling, but some investors buy more, leading to more selling and a significant drop in stock price. The company tries
Bearish patterns are less likely to occur than bullish ones in the stock market. Bullish formations happen more frequently and have higher success rates. Averages and frequency distributions are important tools for analyzing chart patterns. The frequency distribution allows for a better understanding of
Constant paper trading sharpens investor skills, develops intuition for chart patterns, and keeps trading reflexive. Investors should research and understand companies before investing. Developing an investment style combines fundamental, technical, emotional analysis, and money management. Acquiring experience is individual
Chart formations provide profitable opportunities for day traders, position traders, and long-term investors. Day traders rely on reliable formations that quickly fulfill predictions, while position traders focus on convenient entry and exit points. Long-term investors use chart patterns to signal good entry and
Partial rises and declines in formations often lead to breakouts. Broadening bottoms have a downward price trend. Trendlines in broadening bottoms should slope in opposite directions. At least two minor highs and lows are needed for a valid formation. Volume trends in
The breakout point in a broadening formation is difficult to identify. A breakout occurs when prices rise above the highest high in the formation. In the example given, prices rise above the top trendline, indicating an upside breakout. However, there are only
The measure rule calculates the target price for a stock based on the height of a formation. Breakouts occur outside of trendlines and take time to form. Upside breakouts reach the target price 59% of the time, while downside breakouts
Susan shorted a stock after analyzing its chart pattern. The stock continued to decline, and she adjusted her stop-loss order accordingly. She doubled her stake but was wrong about the stock continuing to go down. Susan adjusted her stop-loss order again and waited
The stock found support at the $12 level and established a horizontal trendline. The demand from investors halted the decline and sent the stock to a new high. However, the stock lacked upward momentum to push through selling pressure. Prices eventually collapsed and retreated
A pullback in stock prices gives investors a chance to short or add to their short position. Figure 2.3 shows areas of support and resistance along trendlines. Extending trendlines into the future can predict areas of support and resistance. Waiting
The average time for a throwback is 30 days. Pullbacks are more common, occurring in 72% of formations with downside breakouts. Successful formations reach their ultimate low in 2 months, while failed formations take 3 months. Volume
Prices hit stop, small loss incurred, Palmer walked away. Broadening formations breakout direction varies. Acceptable failure rates. Average rise and decline below par. Measure rule works better for upside breakouts. Descending broadening formations have flat top and down
During 1993, the stock entered a formation in early April and moved higher until it reached about 35. The rise stalled as investors sold and buyers matched. The stock moved sideways until May 10 when it dropped below the prior minor low.
Prices decline by less than 5%, turn around, and eventually hit 42. Broadening top formed in early November. Failed breakouts in both directions. Sharp decline tempts short sale, but stock moves higher before pulling back. Failure type called
Only 19% of upside breakouts fail to continue moving up. Only one downside breakout fails to continue moving down. Most formations break out upward (57%), followed by horizontal breakouts (6%) and downward breakouts (37%). Formations breaking
Consider the opposite side of the formation as the stop-loss point. Look for nearer support or resistance zones. Advance the stop to the break-even point. Place a trade as prices reverse course at the trendline. Use stops to protect against an adverse breakout
Partial rises lead to downward breakouts 65% of the time. Partial declines often result in upward breakouts (86%). Broadening formations include broadening tops and bottoms, right-angled ascending and descending, expanding triangle, orthodox broadening top,
Broadening tops are chart patterns characterized by higher highs and lower lows. The top trendline slopes up, while the bottom one slopes down. Volume typically follows price in broadening top formations. Breakouts occur when prices move outside the trendline boundaries.
Broadening tops can indicate a trend reversal or consolidation. Only a small percentage of formations are usable. The behavior of the formation depends on the direction of the breakout. Broadening tops with upside breakouts act as consolidations of the trend, while those
Upside breakouts occur in the upper third of the price range. Most downside breakouts from broadening tops appear in the center third of the yearly price range. The number of alternating touches on the side opposite the entry point determines the likelihood of a
Place stop-loss above highest high, lower it to next minor high or apex. Look out for partial rises or declines. Sandra paper traded stocks before inheriting money. She found a perfect trade and applied measure rule. She raised her stop as stock moved
Ascending broadening wedges have certain characteristics and patterns. The mea- sure rule is similar to the wedge family. Reversal or consolidation Short-term (up to 3 months) bearish reversal Failure rate 24% Failure rate if waited
Prices rebound and touch higher trendline, forming broadening wedge. Buying forces price to climb, momentum players jump in. Trading department stops buying, value investors sell at higher price. Stock reaches new high, price overwhelms buying demand. Higher highs and
Ascending broadening wedges have a unique appearance with both trendlines sloping higher. The volume pattern is irregular but generally rises as prices move up. Premature breakouts and partial rises are common in these formations. Failures occur when prices break out
Ascending broadening wedges have few upside breakouts and short throwback durations. Pullbacks are more plentiful but still rare. Downside breakouts occur near the yearly high and the formation low is used as the target price. Trading tactics include using the
The excerpt describes a trader who identifies a bearish trading opportunity using the combination of a broadening wedge and a double top pattern. He sells the stock short and sets a target price based on the double top measure rule. He monitors the stock daily and
The excerpt discusses the broadening formation as a consolidation of the upward trend and a reversal of the intermediate-term price trend. It provides guidelines for identifying the formation, including the shape, down-sloping trendlines, trendline touches, volume patterns,
Prices rise, retrace, and then decline before forming a partial decline. Volume decreases before an upside breakout. Failures to consolidate the trend are common. Descending broadening wedges are rare formations. Upside breakouts have high gains. Price
The stock curls around and pierces the top trendline, resulting in an upside breakout. Descending broadening wedges have an upside breakout 76% of the time, following a partial decline. Premature breakouts are rare in these formations.
Choose chart pattern near yearly high; breakout in center. Consider buying stock with broadening wedge formation. Wait for breakout above top trendline. Exception: partial decline signals upside breakout. Intraformation trade possible. Use stop-loss orders and adjust as prices
BARR bottoms are formations that resemble frying pans or spoons. They are essentially inverted BARR tops. BARR bottoms occur due to momentum and are identified by specific characteristics outlined in Table 7.1. The formation appears as a frying pan with
The Bump-and-Run Reversal Bottom is a bearish pattern that typically occurs after a stock has reached its ultimate high and starts moving down again. An example of this pattern can be seen in the stock of Bethlehem Steel Corp. Prices drop
The measure rule predicts target price 92% of the time. BARR bottom acts as a reversal of the trend 55% of the time. 81% of formations move upward at least 5% after breakout. Average rise is 37
Prices drop during the bump phase, forming a BARR. Formations in the center price range have the highest average rise at 42%, followed by the lower third at 39%, and the highest third at 28%. The bump low is
Volume increases during the bump and breakout phases. The measure rule is used to calculate the minimum price target. Breakout confirmation is important before buying the stock. Selling at the old high is recommended. Place a stop-loss order below the nearest support zone.
John believed the stock would break out at $21 1/8, giving him a target price of $23 3/4. The stock moved sideways for a month, but John expected it to decline and then rise. However, it broke
Novice investor's mistakes lead to buying high and selling low. Learned from mistakes, now waits for confirmed breakout and uses stop-loss orders. Bump-and-Run Reversal Tops: appearance, failure rate, decline range. BARF formation discovered
Prices tentatively level out, rebound, and start rising again. A rising trendline shows investor enthusiasm for the stock. The trendline should be approximately 30 degrees, not too steep or flat. Lead-in prices rise on high volume after a favorable
Prices drop through trendline, climb again, then drop. Rarely, prices don't reach trendline before climbing. Failed BARR formations have high volume and prices climb instead of declining. Waiting for prices to close below trendline reduces failure rate.
Dual BARR formations occur 26% of the time, with only 8% having peaks above the first bump. Additional declines of 15% to 20% are common after a downside breakout. Premature breakouts and rounded bumps are typical
The sell line confirms a BARR pattern, giving momentum players an advantage. Selling should be done with caution, as the stock could continue to rise. Pull the trigger if the company or market looks uncertain. Bumps that are not rounded or show a
Jenny analyzed a stock she owned using the BARR method. She calculated the stock's minimum target price and looked for support zones. She couldn't determine how high the stock would rise but decided to hold onto it. She set a stop-loss order
The cup-with-handle formation has a failure rate of 26%, but waiting for an upside breakout reduces the failure rate to 10%. The average gain is 38%, with a likely range of 10% to 20%. Throwbacks after an
Cups without handles were removed from the study. A cup without a handle is considered a rounding bottom. The maximum depth of a cup was set at 50%, but a range of 12% to 33% was also used. The handle
The first type of failure in a cup-with-handle formation is shown in Figure 9.5. Prices reversed course and became choppy before an upward trend smoothed out the choppiness and prices soared to a new high. However, high volume soaked
Trading without fear: Important factors for cup-with-handle patterns.
- Down-sloping handle volume trend is detrimental. - Handle above cup midpoint is important and most formations were selected with this in mind. - Handle low above 200-day moving average has
Investing in cup-with-handle formations has a low chance of yielding high gains. Only 27% of cup formations result in gains over 50% and the chances of doubling your money are just 7%. Adding the formation height to the breakout price
Stock reached high, missed buy signal, climbed again. Inner cup formation, buy signal on girlfriend's birthday. Stop placed below handle low. Right-angled broadening top formed, stop moved up. Stock hit stop, gains of over 30%.
A major brokerage firm lowered its rating on a stock, causing a 30% decline. The stock recovered briefly but formed a double top before declining further. Another example is given where a negative announcement led to a 50% decline. Dead-cat b
A dead-cat bounce formation failure occurs when a stock rises instead of moving back down after a decline. Statistics show that 54% of these formations act as reversals of the prevailing trend, while the rest act as consolidations. Most formations (90
Table 10.3 displays statistics on the dead-cat bounce, including high volume on the event day and a bounce high reached within 3 weeks. Most stocks experience the event near their yearly high or in the center third of the yearly price range.
The text explains diamond tops and bottoms, which are reversal or consolidation patterns in stock trading. Diamond tops indicate a reversal of an upward trend, while diamond bottoms indicate a reversal of a downward trend. The patterns are characterized by higher highs and lower lows,
A diamond top pattern indicates a bearish outlook. Volume recedes as the price range narrows. A head-and-shoulders top pattern may also be present. The diamond pattern can coexist with a head-and-shoulders top pattern. Support
The diamond pattern shows weak volume breakout. The rise in prices with decreasing volume indicates loss of momentum. The formation is not a true double bottom. Diamond tops and bottoms are rare formations. Diamond tops have a higher failure rate than bottoms. Only diamond tops
Take opportunities to exit losing trades. Diamond tops have a 20% decline and breakout volume is half again as much as the prior day. Throwbacks and pullbacks take around 11 days to return to the breakout point. Successful formations take longer for
Trend zones must have a compelling risk/reward ratio. Diamond tops and bottoms have a measure rule for price prediction. Diamonds often return to their base. A symmetrical triangle appears in late May. Diamonds sometimes form after a quick run-up in prices
Scott missed the signal, wondering what went wrong. Small rises have less than 15% gains, but some show gains over 45%. Throwbacks occur 68% of the time. Double bottoms can save from making unnecessary investments. Bottoms spaced
Double bottoms that are closer together have better performance. The classic definition of a double bottom has arbitrary guidelines. There is no meaningful performance difference between different settings. Prices must rise above the confirmation point for a double bottom to be considered valid. The failure rate
On 525 occasions, prices continue to rise by more than 5%. An example is given of a novice investor who fails to wait for breakout confirmation and ends up losing money. Statistics show that 69% of double bottoms act as reversals of
Double bottoms are a reliable chart pattern for predicting upside breakouts. The distance between the two bottoms affects the potential gains, with closer bottoms resulting in larger gains. There is a time delay between the second bottom and the breakout, which is about a month
During mid-April, the stock reaches its ultimate high price of 40.26 before declining. A potential double bottom is identified with two bottoms at nearly the same price level and several months apart. The rise between the two bottoms is about 13
In mid-December, the stock fulfilled the measure rule. She hesitated to sell and placed a stop. The stock moved up and entered the bump phase of a bump-and-run reversal. She sold when the stock dropped below the sell line and made
Prices trend upward to first summit, confirmation point is lowest low. Double top formation occurs over several months. Volume pattern supports overall receding volume trend. Breakout volume not crucial but high volume breakouts decline further. Double tops form due to measured move
Prices fall but stop at the top of the consolidation area. A downside breakout begins. The volume pattern and failure to close below the confirmation point are key indicators. Double top formations often perform poorly in a bull market. Waiting for confirmation increases the probability of
Selling at the top may result in missed profits. The measure rule estimates the minimum price move expected. Only 39% of double tops fulfill the prediction. Peaks closer together perform better. Breakout statistics show pullbacks and average time to reach the
Table 13.4 shows statistics on double top volume, including the occurrence of higher volume on the left top compared to the right top. Table 13.4 also shows breakout volume, which starts high and gradually diminishes. Table 13.
Sell short after pullback, wait for confirmation point. Rachel shorted stock, made 25% profit in 3 weeks. Flags and pennants are short-term formations. Caution when trading flags and pennants, profits may not be as large
Flags and pennants are short-term chart patterns that usually last a few days to 3 weeks. They typically appear during steep, quick price trends. Flags have price action bounded by two parallel trendlines, while pennants have converging trendlines.
Flags and pennants signal the halfway point in a price trend. The predicted rise in this example is too small to take advantage of. Flags and pennants in a downtrend fail more often than those in an uptrend. A throwback or pull
Flags and pennants form in the center of a decline, with an average decline of 17% on either side. The most likely decline after formation is 15% for flags and 25% for pennants. The measure rule, which measures
Stock pierces first support, declines to second, but gets stuck. Close position, short sale covers at 39, receive $3/share profit. High, tight flags have 32% failure rate, but drops to 17% if wait for
Ignoring flag duration and correction guidelines has a minor impact on performance. Figure 15.2 does not meet O'Neil guidelines, but still qualifies as a flag. The gain from this flag is 33%, below average. Guidelines for selecting high,
Stock initially doubles in 2 months, then declines. High, tight flags are risky. Various interpretations of O'Neil guidelines yield different results. Minimum flag length improves performance but reduces qualifying formations. Removing selection criteria has minimal impact on performance. Best price
29% of failures have rising volume trends, while 53% of successful formations with rising volume trends have below average gains. Receding volume trends are beneficial. 81% of formations have upside breakouts and only 17% fail to continue moving
Ex-dividend gaps occur in utility stocks or high-dividend stocks. The price sometimes moves downward on the day of dividend distribution, leaving a gap in the chart. Gaps can close quickly or take longer depending on their type. Area gaps close within
Continuation gaps occur in high volume and remain open. Exhaustion gaps follow uptrends and have high volume. Area gaps close within a year and most close within a week. Breakaway gaps occur near the start of a trend and have high volume.
The ultimate low and high on the chart occur in mid-January and mid-May. Gaps in uptrends occur in the upper third of the yearly price range, while gaps in downtrends occur in the center third. Gaps in the highest third
Gina bought 1,000 shares at 58 with a stop-loss order at 57. She predicted a continuation gap and sold at 65H, making $7,500 in 3 days. She sold short at 59, gained
The hanging man formation has a high failure rate. The benchmark for a significant decrease can be adjusted. The formation should be found during an uptrend. The price trend leading to the formation is important. Hanging man formations rarely work as expected. Failures
The T-bar column has a large number of samples, ranging from 78,000 to 500 stocks over a 5-year period. The percentage of higher highs the next day remains around 55.4% regardless of whether the closing price is
The methodology for upside and downside breakouts is the same, occurring within a third of the yearly high or low. Upside breakouts near the yearly high have the highest average gains of 53%. Hanging man formations have higher volume, but high volume
Buying demand briefly lifts prices, but they soon decline again. The formation of a head-and-shoulders bottom signals a reversal in the long-term uptrend. Characteristics include a three-trough formation, a neckline connecting the shoulders and head, and volume
The head-and-shoulders pattern has heavy volume near the head as prices rise. The right shoulder volume is not alarming. Prices advance after the right shoulder and then move sideways for 2 weeks. Breakouts don't always result in a 5
The target price for a head-and-shoulders formation is the minimum price to which prices will rise. Steep, up-sloping necklines require substituting the rise between the head and right shoulder for the neckline breakout price. Buying the stock
Wall Street fascinated him since childhood. He bought stocks based on a head-and-shoulders bottom pattern. The stock initially did well but then dropped. He held on, and the stock eventually recovered and reached new highs. The stock soared during the summer
A rounding bottom pattern indicates a bullish reversal. A complex bottom with two heads is symmetrical. Characteristics of head-and-shoulders bottoms are outlined in Table 19.1. Complex head-and-shoulder bottoms can have multiple shoulders or multiple heads
Trading without Fear: Key Points
- Chart formations can serve as indicators of market trends and potential trade opportunities. - Failures of chart formations often act as consolidations of the trend. - It is important to determine the formation's success or failure after
The relationship between right shoulder height and gains is random. Most complex head-and-shoulders bottoms have mostly horizontal necklines. Breakout statistics show that 97% have upward breakouts, while 3% have downward breakouts. Throwbacks occur
Trading tactics for complex head-and-shoulders bottoms: - Use the measure rule to determine target price - Consider placing a long trade or covering short commitments without waiting for confirmation - Set a stop-loss order below the lowest shoulder or head -
Head-and-shoulders tops are popular and easily recognizable chart patterns. The formation consists of three bumps, with the center bump being the highest. The slope of the neckline and the height of the right shoulder can predict the severity of the price decline,
Symmetrical appearance, volume pattern, and neckline confirmation are key characteristics of a head-and-shoulders formation. Failures are rare but can occur. Statistics show that the head-and-shoulders top pattern is a bearish reversal and prices usually decline
Values above 80% are acceptable for head-and-shoulders formations. The average length of the formation is 2 months. A 7% failure rate allows for trading without waiting for the breakout. The most likely decline is about 15%.
The volume characteristics of head-and-shoulders patterns were analyzed. Left shoulders had the highest volume, followed by heads and right shoulders. The breakout volume increased by 59% above the prior day. Volume dropped off rapidly after the breakout. The measure
Kelly, a housewife, is an active investor who has turned her savings into a six-figure retirement portfolio through years of learning from her mistakes. She came across a stock that showed potential for a head-and-shoulders top pattern. Despite some uncertainty
There are two types of complex head-and-shoulder tops. One type has dual heads and resembles a horn top, while the other type has multiple shoulders with only one head. Both patterns indicate a bearish situation. Complex head-and-shoulder
A complex head-and-shoulders pattern is described with key characteristics such as symmetry, volume trends, and neckline breakout signals. The text discusses the potential for a stock to reach high prices before rounding over and signaling a warning. A novice investor fails to
The formation's decline is unlikely to continue moving down. Only 11 out of 141 formations fail to move down by more than 5%. The most likely decline is 20%. The measure rule provides a minimum price target that hits 67%
Shoulder tops and head are good locations for stop-loss orders. Place short sale or add to position during pullback. Measure rule predicts minimum expected decline. Compute formation height and target price. Use lowest shoulder troughs for breakout price in steep neckline formations
Higher highs and lower lows indicated a broadening pattern. The stock was nearing a sell point, but not yet. Prices attempted to reach the previous high but fell short. Prices moved up slightly, confirming the expected bounce. The stock bottomed out and
Horn bottoms have a low failure rate but still have failures. A 5% failure occurs when prices start in the correct direction but falter. The formation of a horn bottom may not be worth betting on if there is not enough potential for price
Horns with uneven low prices perform better. Lower right horn spikes have a 40% average gain, while lower left spikes have gains averaging 37%. Inside weeks perform poorly with gains of 33%. High volume on the left horn works best with
Three weeks later, the stock hit bottom at 28'/2 and turned around, with the decline lasting just over 3 months. The stock then moved swiftly upward and topped out at 57, exactly double the low. If a horn appears after
The horn top pattern is characterized by two long spikes that are taller than previous spikes. The price difference between the two spikes is usually small, but can vary. The spikes should be well above surrounding highs and appear at the end of a long uptrend
A pipe bottom marks the turning point. Statistic Number of formations in 500 stocks from 1991 to 1996 188 Reversal or consolidation 92 consolidations, 96 reversals Failure rate 30 or 16% Average
Trading without Fear: Key Points
- A trader observed a complex head-and-shoulders formation on a stock. - Volume patterns indicated a potential decline. - The trader shorted the stock and made a profit. - The stock dropped further than predicted
Inside days are chart patterns characterized by a high and low that are within the range of the previous day, but with a lower high and higher low. They are believed to indicate a potential large price move. However, failure rates for inside days are high
I analyzed formations in stocks over a 5-year span, using every other formation for stocks with 20 formations and every tenth pattern for stocks with 100 formations. This created a diverse sample pool. I categorized formations as upside breakouts or downside break
Closing price's location in price range predicts breakout direction. Inside days have smaller price moves, typically less than 5%. Close of inside day near prior day's low predicts downside breakout. Average daily price range decreases during inside day, then increases.
Nathan paper trades an inside day in Airgas. He sells short and makes a paper gain of $2,000. Island reversals have a mediocre performance. Tops have a 13% failure rate and an average decline of 21%. Bottom
Island reversals occur during a retrace in a downtrend. The island bottom forms after a significant decline. Volume is highest on the left shoulder and lowest on the right shoulder. The island top on the right is difficult to spot due to the
An island bottom failure occurs when prices do not close above the trendline. Trendlines act as resistance to rising trends. Island reversals have a failure rate of 13% for tops and 17% for bottoms. Island tops have a likely decline
Island reversals show reluctance to continue breakout direction. Wait for pullback/throwback. Trendline piercing signals trend change. Island reversals have low failure rate but poor performance. Retrace occurs after second gap, wait for it. Use trend
The second leg is shorter in price but longer in percentage. Only 43% of second legs exceed the first leg's decline. A large first leg decline should have a large corrective phase retrace. The second leg follows a trendline and can be
The text excerpt discusses the concept of measured moves in trading and provides examples of their formation. It advises traders to focus on the first or second measured move and avoid the rest. The excerpt also mentions that measured moves can occur in a horizontal trend, but
Late October and early November saw a corrective phase in which prices rebounded before heading down. A strong support level at 40 prevented a significant decline. A trend change was indicated by prices piercing the up trendline in mid-December and failing to continue
43% formations meet or exceed measure rule; 80% benchmark reliable. Use measure rule to predict price decline. Tabulate height of first leg for target price. Short stock after corrective phase completes. Retrace typically 40-60% of prior
Investor uses computer to monitor stock pick. Identifies chart pattern and shorts stock. Makes 12% profit. Chart pattern shows support and resistance zones. Measured move up formation has 23% failure rate. Average gain is 68%. Identify
The excerpt discusses the concept of trading without fear by analyzing chart patterns. It explains how to identify a measured move up formation and highlights the importance of trendlines and volume trends. The excerpt also mentions the possibility of a measured move up failure and provides guidelines
69% of formations act as reversals, 23% failure rate. Average rise of successful formations is 68%. Most likely gain is between 30% and 60%. 35%, 50%, and 62% retracements are
57% of formations have second legs, symmetrical triangle shows equal or longer legs, calculate target price, consider resistance levels, take position after corrective phase, sell near target price, Michelle's unique approach to trading.
She sold her shares at 24'/2 after prices left the triangle and fell back. The stock tumbled back to the middle of the support zone. One-day reversals perform well, with a 24% failure rate for tops and a
ODR tops and bottoms have distinct characteristics. The price trend should be down for ODR bottoms, and both tops and bottoms should have tall price spikes that are twice as large as the average spike over the prior year. For tops, the closing price
The tallest columns near the 10% and 15% categories indicate the most likely returns for ODRs. ODR tops decline by 15% or range, while bottoms perform marginally better. Pullbacks and throwbacks are reassuringly high
An outside day is a 2-day formation with a broadened price range. Upside breakouts have a 25% failure rate and an average rise of 32%. Downside breakouts have a 42% failure rate and an average decline
The stock initially closes higher despite a lower low. It then experiences three consecutive outside days, reaching a peak before a significant decline. The failure rate for upside breakouts is 25% and for downside breakouts is 42%. Outside days appear randomly
A review of volume statistics shows no surprises. Outside days with a large number of shares traded do not necessarily indicate a more powerful move. Upside breakouts with high volume perform worse, while downside breakouts with low volume perform better. The closing price
There are 185 short formations with upside breakouts, but the chances of a significant gain are small. Almost half of the formations with downside breakouts fail. Stick to outside days with upside breakouts. Justin, a successful doctor, developed five rules
Justin sold a stock at a profit but could have made more if he had held onto it longer. Pipe bottoms are a bullish reversal pattern with a low failure rate and high average rise. Daily pipe bottoms have a higher failure rate and lower average gain compared
Pipe bottom failures occur when prices do not increase by more than 5% before reversing the trend. These failures can be identified by low volume on the left spike of the pipes. Pipes with above average left volume and below average right volume perform better.
The excerpt discusses pipe bottoms in trading, providing statistics and analysis on their characteristics and performance. Pipe bottoms are formations in stock charts that indicate a reversal or consolidation of the prevailing trend. The statistics show that pipe bottoms have a failure rate of 12%
Peter invests in the stock market during breaks. He noticed a situation where prices had been moving horizontally, forming an extended base. There were downward price spikes accompanied by above average volume. Peter placed a stop-loss order below the lowest pipe and bought the
Three pipe formations indicate a trend change. The first pipe is a failure as prices rise significantly above it. The center pipe marks the turning point, with prices falling on either side. The third pipe is the last chance to exit or place a short at
I found 443 chart formations in 150 stocks, with 54% acting as consolidations and the rest as reversals. The failure rate is 18%, just below the 20% threshold for reliable formations. Most failures are of the
Long-term uptrends can signal trend reversals. Pipes in uptrends indicate short-term weakness. A pipe top example shows a profitable short move. Use stop-loss orders and consider support and resistance zones. Rectangle bottoms have upside and downside breakouts. Ups
A valid rectangle requires at least two touches of each trendline. Prices stay within the boundary lines until a downward breakout in mid-January. Volume pattern tends to follow the breakout direction. Rectangle bottoms act as consolidations of the prevailing price trend. Fail
Premature breakouts occur in both directions, with the real breakout usually being downward. Upside breakouts in the center third of the yearly price range have the best average return of 49%. Downside breakouts near the yearly low have losses of
Take advantage of throwbacks or pullbacks before trading. Rectangle bottoms can mark the end of a decline. A recent paper trade showed a rectangle bottom followed by an upside breakout. The measure rule applied to this formation gave an upside breakout target. Wait for
Premature breakouts in rectangle tops often lead to genuine breakouts on the opposite side. Williams Companies Inc. is an example of a rectangle top with an upside breakout. Volume patterns in rectangles typically start about two-thirds of the way to the breakout and
Horizontal trendlines outline price action with touches. Volume usually recedes until breakout. Only 5 out of nearly 300 rectangles reviewed fail. Formation length is about 3 months. Receding volume trend is key to a sound rectangle. Upside break
Volume is high on breakout day and remains high through the following week. Premature breakouts are difficult to distinguish from genuine ones. Premature upside breakouts often lead to a genuine downside breakout. Throwbacks and pullbacks occur in over half of formations
Don't miss second chances; rectangles can be part of larger patterns. Recognize reversal signs and breakouts. Breakouts are usually in the direction of the prior trend. Trade the formation as it swings from trendline to trendline. Look out for
Tour Figure 34.1 shows an example of a rounding bottom on a daily scale. The bottom is irregular. Prices quickly rebound after a downward price decline. Prices should return to the base of the rounding bottom before rising. Rounding bottoms mark a
Figure 34.3 shows a rounding bottom that acts as a reversal of the primary trend. The statistic suggests waiting for prices to climb above the right saucer lip before buying the stock. The average rise of successful formations is 54%, compared to
The stock climbed, leading the individual to consider day trading seminars. However, the stock declined and closed below the up trendline, resulting in a loss. Three years later, the individual realized the stock had peaked at triple the purchase price. Rounding
Rounding tops are formations that appear on both daily and weekly charts. They have a rounded half-moon shape, with prices curving upward, rounding over, and then moving down again. The volume trend also appears rounded, with higher volume on either
The most likely rise for rounding tops is 20-40%. The irregular pattern is due to the scarcity of formations. Only 69% of formations have prices that move above the target price. Rounding tops formations appear on weekly time charts. There
Look for areas of support to gauge decline. Trading tactic explanations and measures. Buy on breakout. Buy above 30% retrace. Right low support. Sample trade example. Scallops, ascending, and descending patterns. Identification characteristics and volume trends
The relationship for descending scallops is unknown due to lack of consecutive formations. Ascending scallops appear when prices are rising. The formation resembles the letter "J." When hunting for scallops, look at the price lows, not the highs. Asc
Be cautious of formation lows not moving 5% above the right edge. Failure rates for ascending and descending scallops are 25% and 3% respectively. Measurement method penalizes ascending scallops and explains subpar gains and losses. Ascending
Only 9% of formations have four descending scallops, indicating the end of a downtrend. Ascending scallops narrow and become flatter as they climb. Trading tactics for scallops include using the measure rule to determine price targets, watching for
Ascending scallops meet targets more often than descending ones. Descending scallops form near the end of a trend. After completing, scallops see price declines and retracements before continuing up or down. For ascending scallops, wait for the decline to
The compactness of a formation leads to poor performance. Upside breakouts have an average rise of 32% and downside breakouts have an average decline of 21%. Both types have likely gains or losses of about 10%. The formation called
Statistics for shark-32 pattern: 300 patterns examined over 5 years. Downside breakouts have slightly more reversals. Failure rate for both breakout directions is over 40%. Average rise/decline for successful formations: 32% upside
Downside breakouts have a 23% average loss within a third of the yearly high. Symmetrical Shark-32 patterns perform better. The formation acts as a consolidation of the prevailing trend. Symmetry values of 0.40 to 0
Ascending triangles are a favorite formation for trading. The failure rate is low if you wait for an upside breakout. The average rise is 44% and the most likely gain is 20%. The measure rule is fulfilled 89% of the time.
The text excerpt discusses the characteristics and identification guidelines for ascending triangles in stock trading. Ascending triangles are formed by a horizontal resistance line and an upward sloping support line, creating a triangular shape. The top line should have at least two minor highs,
The excerpt discusses the misidentification of ascending triangles and the characteristics that differentiate them from other chart patterns. It emphasizes the importance of having at least two minor highs and two minor lows to form the top and bottom trendlines of a true ascending triangle. The
Ascending triangles have an average rise of 44%, while failed ones drop by 21%. Most gains occur in the 11% to 20% range. Breakouts two-thirds of the way to the apex are the most powerful. 89%
The text discusses the concept of ascending triangles in stock trading. It explains that after an upside breakout, volume tends to spike the following day, indicating increased buying activity. Throwbacks, which occur after a breakout, are more likely to happen after a high
The trader sold at point 2 after the stock hit the price target. Volume trend was down-sloping during the formation. The trader waited to buy due to low breakout volume. The target price was calculated for a profitable move. The trader bought
Investors buy stock until it slips below the support line. Smart investors sell as the floor weakens. The stock declines but soon levels off. Fllene's Basement Corp disposes of remaining shares. The stock reaches a low before leveling out.
Descending triangles have a 45% failure rate. Prices tend to continue in the direction of the existing trend. Waiting for a downside breakout is advised. Only 55% of descending triangles work as expected. The most likely decline is in the 10
A genuine breakout soars outside the formation in the breakout direction. Premature breakouts are short, while throwbacks or pullbacks take longer. Upside premature breakouts are rare, occurring 6% of the time, while downside premature breakouts
An alternative approach for trading descending triangles is presented. The measure rule predicts the value to which prices decline after a downside breakout. The height of the formation is computed by subtracting the price of the lower trendline from the upper one, and a line
The stock climbed after the new year, resulting in a profitable trade. Downside breakouts show a trend of prices decreasing and intersecting trendlines. Symmetrical triangles occur in a downtrend and have two trendlines bounding prices. High volume breakouts
Symmetrical triangles require at least two minor highs and two minor lows. A symmetrical triangle with only one minor high is not a reliable formation. Unusual volume trends should not eliminate a symmetrical triangle. Look for smaller minor lows on the left side
The performance of symmetrical triangles in the stock market is influenced by factors such as the industry and general market conditions. The most likely gain for formations with upside breakouts is about 20%, although the actual trading results are likely to be better. The
High volume breakouts are more likely to throw back or pull back. Low volume breakouts have a lower likelihood. High volume breakouts result in better performance than low volume breakouts, but the differences are not statistically significant. The measure rule for sym
Stock price riding along trend channel; anticipated throwback. Bought stock at 9'/g. Stock touched top of channel, sold at 11 5 /s. Symmetrical triangle top with upward breakout. Failure rate: 5%. Average rise
Traders sell as stock drops, value investors buy. Volume decreases. Prices meet support at top angle apex. Symmetrical triangle tops have distinct minor highs and lows. Volume recedes throughout formation. Premature breakouts occur outside triangle but return. Triangle
Search for powerful formations, use stop to limit losses. Symmetrical triangle with downside breakout, followed by pullback. 5% failure rate for symmetrical triangles. Average rise/decline of successful formations. Frequency distribution of losses and gains. 81%
Premature upside breakouts are more common in genuine downside breakouts. Throwbacks and pullbacks provide opportunities to add to positions. It takes longer to reach the ultimate high than the ultimate low. Downside premature breakouts are less common than upside premature
Prices threw back to the triangle apex and hovered for 3 days. Breakout direction indicates the expected target price. Take a position with the trend and place stop at highest high or lowest low. Consider making an intraformation trade. Move stop to capture
Formations with higher volume on the right bottom have higher gains. Triple bottoms have a low failure rate of 4%. Triple bottoms have three distinct bottoms and the price variation among them is minor. The overall volume trend for triple bottoms is usually downward.
Triple bottoms are visible on weekly charts and have three minor lows. Each bottom is successively lower than the prior one. Prices climb above the confirmation point before heading back down. Triple bottoms on the weekly scale have a long duration. Prices may pierce
Throwbacks occur near confirmation points, wait for prices to trade. Triple bottoms have an average rise of 20%. The average formation length is 4 months. Triple bottoms take about 42 days to reach the confirmation line. Volume patterns can indicate performance
Triple bottoms are a good investment opportunity, but wait for prices to start rising again after a throwback. Place a stop-loss order below the lowest low for protection. A sample trade shows success with a triple bottom formation. Triple tops have a high failure
Prices climb, form head-and-shoulders top, decline, and reach low. Triple top formation with three peaks and valleys. Identification guidelines for triple tops provided. Volume trend is usually downward. Prices must decline below confirmation point. Chart patterns depend on
Figure 43.3 shows a triple top on the weekly chart. The failure rate of triple tops is 15%. The chart demonstrates that the triple top marks the peak in the stock. Figure 43.4 shows a 5% failure example
The 10% column represents the most likely decline, with over half of the formations having losses less than 20%. Triple tops have an average formation length of 4 months and are typically seen on weekly charts. Prices must decline below the confirmation point
Prices indicate support when they decline and rebound. Triple tops should wait for prices to fall below the confirmation point. Fullbacks occur 84% of the time. Place a stop-loss order above the highest high. Danielle made mistakes by not waiting for confirmation
A falling wedge is a rare formation with two down-sloping trendlines. Prices decline, recover somewhat, and then reach a new low. The formation is identified by drawing trendlines along the minor lows and tops. It is important for there to
The falling wedge formation is compared to a spring winding tighter and tighter, with prices and volume shrinking. During a breakout, the pent-up force is released and prices burst through the formation boundary. Falling wedges have a failure rate of 10%, which
Only 2 formations have upside breakouts that fail to continue upward by more than 5%. Throwbacks occur 47% of the time. Average time for throwbacks to complete is 12 days. Successful upside breakouts reach ultimate high in
Glint plays the stock market and identifies a head-and-shoulders top pattern in a company's stock. He waits for a falling wedge to form and hopes to buy in at a good price. When the stock breaks through the wedge trendline,
Prices meandered lower with high volume breakout on December 16. Pullback attempt failed. Prices reached new high, then made minor low in April. April low marked beginning of new uptrend. Rising wedge example shown in Figure 45.1
Rising wedges are short-lived formations that usually break out about two-thirds of the way to the apex. They rarely last more than three months. Receding volume is a key element in identifying a rising wedge, although there are exceptions. Rising wed
Nearly half of rising wedges have declines less than 15%. Formations with a downward volume trend perform better than those with an upward trend. The average decline of successful formations is 19%, while those with a down-sloping volume trend have
Only 63% of formations meet reliability benchmark. Rising wedge passes identification guidelines. Measure rule used to gauge trade profitability. Downside breakout recommended for investment success. Falling wedges have powerful breakouts. Breakouts from rising wedges mostly downward. Full
Joe successfully traded a stock, making almost $9,000 in about a year. Weekly downside reversals have a high failure rate of 37%. Reversals near a price peak are more likely to succeed. Large weekly price ranges improve performance.
Reversals near end of uptrend, decide if reversal or consolidation. Weekly chart, higher high, lower low, lower close. Linear regression identifies significant reversals. Focus on failures, 37% failure rate. Throwback attempt can deceive.
Downside weekly reversals can fail if they encounter strong support or an up-sloping trendline. Market and industry conditions affect the success of these reversals. Most downside weekly reversals result in a short-term trend reversal rather than a consolidation.
The benchmark column was used to evaluate other columns, sorting formations by weekly price ranges. High volume and large weekly price ranges perform best. It is unclear if volume improves performance. Failures become more likely as time from the nearest peak lengthens. No
Upside weekly reversals with low volume show gains of 38%, while higher volume reversals have gains of 44%. Performance declines as volume benchmark increases. Wide weekly price range improves performance. Upside weekly reversals have a failure rate of
The price trend should be downward leading to an upside weekly reversal. The reversal occurs after a long downtrend. Upside weekly reversals occur in uptrends and signal a continuation of the upward trend. Reversals can occur near the end of the
Weekly reversals have varying gains, with 17% having gains over 90% and 37% having gains less than 20%. The tallest bars on the chart suggest modest gains. 84% of formations meet their price targets. It takes
The excerpt discusses the concept of trading without fear and highlights the importance of using various indicators in trading. It shares a sample trade experience of a trader named Edward who used the upside weekly reversal pattern to make a successful investment. The text also includes statistical summaries
Top Ten Bearish Formations with Lowest Failure Rates: 1. Rectangle Tops, down breakout 2. Triangles, Symmetrical Bottoms, down breakout 3. Scallops, Descending 4. Head-and-Shoulders Tops