Читать книгу Encyclopedia of Chart Patterns - Thomas N. Bulkowski - Страница 112

I wrote about Hercules Inc. (HPC) as a potential pipe bottom trade (weekly scale), but it's also a broadening bottom on the daily scale. Let me tell you how I traded the broadening bottom.

The stock made a nice‐looking broadening bottom in May and June 2007. It included a partial decline that correctly predicted an upward breakout.

Did I take advantage of the partial decline? No. My notes don't tell why, either. I bought the day after an upward breakout. A better move would have had a buy stop placed at the top of the broadening bottom for a more timely and lower‐priced entry. Or I could have bought earlier because of the partial decline (which is more risky).

Here's my notebook: “Buy reason: Broadening bottom and potential pipe bottom. This is also a measured move up pattern [MMU]. The MMU began in August 2006 and peaked in March, corrected to [the] June low, and is now moving up in the second leg.”

If the measure move were to fulfill its promise, I'd make a bundle because the pattern was huge. The first leg rise was 60%. If the second leg was close to the same length, well, I'd be happy.

Additional notes to the trade were skeptical of the measured move working as expected, even after taking half the first leg height and using that as a projection for a target. “Just 45% meet the target so it's likely this will die at the old high [21.40].” Half height target came out to be 21.52, suggesting a stall at the old high.

This was a swing trade, a short‐term one where the potential profit from where I bought wasn't big. I used a volatility‐based stop and raised it four times along the way to 27 July, when I was stopped out. The market dropped 500 points over 2 days, and it pulled the stock down far enough to trigger the stop.

I sold at 20.36 and made just 1% on the trade. That was just 3 trading days after the stock peaked at 22.48. So I got close to a perfect exit.

The stock appeared to make a 2B pattern. Price exceeded the old high of 21.40 by coasting up to 22.48 before moving below 15 in a series of rollercoaster swings. If I had placed an order to sell my shares at the 21.40 target, I'd have done better.

 Lesson: A better entry was to have a buy stop set at a penny above the top of the chart pattern and not wait for confirmation. The partial decline correctly signaled an upward breakout, so that would help boost confidence that a lower entry price was the correct choice.

 Lesson: For short‐term swing trades, set a limit order to sell at the target price.