As of 04/18/2024
Indus: 37,775 +22.07 +0.1%
Trans: 14,947 -39.62 -0.3%
Utils: 860 +6.95 +0.8%
Nasdaq: 15,602 -81.87 -0.5%
S&P 500: 5,011 -11.09 -0.2%
|
YTD
+0.2%
-6.0%
-2.4%
+3.9%
+5.1%
|
 39,800 or 37,150 by 05/01/202416,200 or 15,000 by 05/01/2024885 or 850 by 05/01/202416,700 or 15,800 by 05/01/20245,250 or 5,025 by 05/01/2024 |
As of 04/18/2024
Indus: 37,775 +22.07 +0.1%
Trans: 14,947 -39.62 -0.3%
Utils: 860 +6.95 +0.8%
Nasdaq: 15,602 -81.87 -0.5%
S&P 500: 5,011 -11.09 -0.2%
|
YTD
+0.2%
-6.0%
-2.4%
+3.9%
+5.1%
| |
|
39,800 or 37,150 by 05/01/202416,200 or 15,000 by 05/01/2024885 or 850 by 05/01/202416,700 or 15,800 by 05/01/20245,250 or 5,025 by 05/01/2024 | ||
Released 3/22/2020.
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
- Price drops dramatically but this takes time, often several months (the drop from A to B).
- Price reaches support and the decline stops (B). A chart pattern such as a double bottom or head-and-shoulders may appear. The bottom may be a single spike, too. The shape of the pattern isn't important. What's important is that price finds support, whether it's a chart pattern or just squiggles on the screen.
- The stock rises but then retraces its gains, dropping back to support (the move from B to C). Another spike or chart pattern may appear here. Again, the shape of price at C isn't important. Support at C and B should be at similar prices (it doesn't have to be exact, but both B and C should show a well-defined support area).
- Avoid trading the stock if both B and C are one-day price spikes (or a few days wide, each). That combination would be a double bottom. You're looking for two chart patterns or one spike and one chart pattern.
- Price rises (C to D), often in a strong push higher, and the up-move typically lasts for months.
For trading, follow these guidelines.
- Buy after it's clear the stock has found support after the second bottom (C). Even if you buy in late, there's often plenty of profit opportunity as the stock rises.
- Price may make a third (or more) bottom at support (the price level of B and C).
- If prices seems to be walking horizontally (often for months), keep an eye on it. If price breaks through support then sell. Otherwise, this is building a flat base. Slide 5 shows an example of this behavior.
- Place a stop loss order below the lower of the two reversal patterns (below the lower of B or C).
Let's look at some examples. All charts are on the daily scale.
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.
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.
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.
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?
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.
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).
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.
For additional examples, try loading up these stocks in the Patternz simulator or use any charting program.
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