As of 09/15/2021
  Indus: 34,814 +236.82 +0.7%  
  Trans: 14,420 +134.87 +0.9%  
  Utils: 925 +0.27 +0.0%  
  Nasdaq: 15,162 +123.77 +0.8%  
  S&P 500: 4,481 +37.65 +0.8%  
YTD
 +13.7%  
 +15.3%  
 +7.0%  
 +17.6%  
 +19.3%  
  Targets    Overview: 09/15/2021  
  Up arrow35,600 or 33,800 by 10/01/2021
  Up arrow15,400 or 14,000 by 10/01/2021
  Up arrow965 or 905 by 10/01/2021
  Up arrow15,600 or 14,700 by 10/01/2021
  Up arrow4,650 or 4,350 by 10/01/2021
CPI (updated daily): Arrows on 9/15/21
As of 09/15/2021
  Indus: 34,814 +236.82 +0.7%  
  Trans: 14,420 +134.87 +0.9%  
  Utils: 925 +0.27 +0.0%  
  Nasdaq: 15,162 +123.77 +0.8%  
  S&P 500: 4,481 +37.65 +0.8%  
YTD
 +13.7%  
 +15.3%  
 +7.0%  
 +17.6%  
 +19.3%  
  Targets    Overview: 09/15/2021  
  Up arrow35,600 or 33,800 by 10/01/2021
  Up arrow15,400 or 14,000 by 10/01/2021
  Up arrow965 or 905 by 10/01/2021
  Up arrow15,600 or 14,700 by 10/01/2021
  Up arrow4,650 or 4,350 by 10/01/2021
CPI (updated daily): Arrows on 9/15/21

Bulkowski's Bottom Fishing with the W-Setup

 

Released 3/22/2020.

W-Setup

Template of the W-setup.

I was using the trading simulator on Patternz to find the best time to sell and found this pattern. Oddly, this pattern isn't a sell signal. Rather, it's a buy signal best used for bottom fishing (buy low, sell high). This setup works about 62% of the time based on 78 trades I looked at.

I show what the pattern looks like in the figure on the right. Price is in black. From A, the stock drops usually for several months and forms a chart pattern at B (circle). The chart pattern can be anything, from a one-day price spike to a double bottom or head-and-shoulders bottom.

The stock recovers for several months before dropping again to find support at C. C is another chart pattern, such as a double bottom or triple bottom but it can be a one-day price spike if B is a chart pattern. The type of chart pattern at B or C isn't important, I don't think. What's important is that it finds support near the same price as B.

After that, the stock recovers and begins to trend upward, often making a strong push higher.

Here's what to look for. Use the figure for reference

Trading the W-Setup

For trading, follow these guidelines.

Let's look at some examples. All charts are on the daily scale.

 

1 / 7
chart pattern

The stock begins a long decline from A and bottoms at B. There it forms a double bottom which confirms as valid when price closes above the peak between the two bottoms. Price struggles higher for 2 months before dropping to C. Point C isn't a chart pattern but just a spike where price finds support near the price of B.

After that, the stock rises to D.

The A to D pattern reminds me of a big W with a strong move down, two reversals which form the bottom of the W, and a strong move back up completes the pattern.

Next slide shows another example.
2 / 7
chart pattern

This example shows the same type of W pattern. Price drops from peak A to the double bottom at B. This double bottom doesn't confirm until after C appears. C is another double bottom. After the double bottom at C confirms, the stock rises to D.

Although I don't show the price scale, the stock rises from 26 to 36 or almost 40%.

Notice that this W-setup has two double bottoms which find support near the same price after a steep sell-off.

Next slide shows another example.
3 / 7
chart pattern

This chart shows the same setup configuration as the prior two. Price starts dropping from A and finds support at B. Price at C forms a double bottom near the price of B. D is another place where the stock tries to drop to C but doesn't quite make it. The stock rises thereafter, to E, forming a rounded turn.

Next slide shows another example.
4 / 7
chart pattern

This is another example of the W-setup. Price drops from A to form the first bottom at B (looks like a double or triple bottom).

Double bottom C appears and there was money to be made trading this double bottom by itself if you were a nimble trader. However, the big bucks appeared after the third double bottom at D. As the chart shows, the stock soared after D completed.

All of the charts (so far) show the setup working. What do failures look like?

Next slide shows the W-setup failing.
5 / 7
chart pattern

This is what I call a failure to launch. Price drops from A to the first bottom at B. There, the stock finds support and rises only to drop back to support at C. Another rise-retrace takes price to D (a double bottom) and then to E. After that, the stock rises but not nearly enough before it dribbles lower.

Next slide shows another example of a failure.
6 / 7
chart pattern

In this example of a failure, the stock peaked at A and slid down to form a head-and-shoulders bottom at B. At C, the stock found support again near the price level of the head-and-shoulders (B). After that, the stock just dropped. For trading, place a stop below the lower of the two reversal patterns (Below the lower of B or C).

Next slide shows another failure.
7 / 7
chart pattern

This shows a similar failure of the stock to rise after a steep drop. Price at A is high but I only show a portion of the chart (price is higher to the left of A).

Price drops to the double bottom at B where it finds support and confirms the double bottom. Price doesn't rise much before heading back down to C, where it again finds support (for a time).

The stock tumbles thereafter.

I don't like to invest or trade drug companies, such as TEVA, because the failure of a drug in clinical trials can cause the stock to dead-cat bounce (drop by up to 66% or more in a few sessions). So this stock isn't a prime candidate for the W-setup.

The end.

For additional examples, try loading up these stocks in the Patternz simulator or use any charting program.

  1. Arch Capital Group (ACGL), double or triple bottom, 5/23/2018. Price rises to peak in August.
  2. ACI Worldwide (ACIW), three double bottoms from May to October 2014.
  3. Accenture (ACN), a head-and-shoulders in May 2010 with a second bottom in August.
  4. Archer Daniels Midland (ADM), two head-and-shoulders from December 2006 to end in September 2007.
  5. Ameren (AEE), twin double bottoms in October 2005 and February 2006. This one fails.
  6. Advance Energy Industries (AEIS), April 2010 to July, a head-and-shoulders bottom followed by a spike.
  7. AES (AES), March 2001 to July, a pair of double bottoms. Price failed to rise.
  8. American Financial Group (AFG), triple bottom in June 2012 chased by 3 single spikes, to November. Huge rise after.
  9. Aflac (AFL), Feb to April 2013, twin double bottoms acted as a continuation of the uptrend.
  10. Akamai (AKAM), twin double bottoms, May and August 2017.

See Also

 
Top
 

 

Support this site! Clicking any of the books (below) takes you to Amazon.com. If you buy ANYTHING while there, they pay for the referral.

My novels:  Bumper's Story Head's Law

Chart Patterns: After the Buy Getting Started in Chart Patterns, Second Edition Trading Basics Fundamental Analysis and Position Trading Swing and Day Trading Encyclopedia of Candlestick Charts Trading Classic Chart Patterns

Copyright © 2005-2021 by Thomas N. Bulkowski. All rights reserved.
Disclaimer: You alone are responsible for your investment decisions. See Privacy/Disclaimer for more information.
Some pattern names are registered trademarks of their respective owners.

Home Advertise Contact Donate Links Privacy/Disclaimer