Читать книгу Encyclopedia of Chart Patterns - Thomas N. Bulkowski - Страница 120

Figure 9.4 shows a failure that's typical for most chart patterns: It's called a 5% failure.

Price bounces between the two trendlines plenty of times, forming a right‐angled and ascending broadening formation, A. Price along the bottom sometimes pierces the horizontal support line (B) and sometimes it falls short. It's close enough, though, to give us enough minor low touches.

Figure 9.4 The broadening formation breaks out downward, but the stock fails to see price drop far.

Depending on how you draw the horizontal line along the bottom of the chart pattern, the breakout happens at C when the stock closes below the line.

Price makes a lower low before recovering. It's like dipping your toe into water (just after the breakout), finding it too cold for a swim, and scurrying back indoors (when price rises). Price busts the downward breakout at D when a breakaway gap sends price soaring.

Unfortunately, these types of failures happen too often in chart patterns. If you own the stock and it fails to drop more than 5%, then you're in good shape. If you sell a long holding expecting a big decline and it fails to provide one, you might be upset. Chill out. You'll never get out of this life alive.

I don't know of many tips to share that limit these types of failures. One tip is to look at the market trend. If the general market is trending higher, that's a plus. If it's moving sideways, I can live with that, too, but know the ride might be bumpy. A downward trend spells trouble. Do I really want to swim against the current and risk being run over by a jet skier?

I do the same check for stocks in the industry. I count how many are rising over the past 6 months. If I follow a dozen stocks in the industry and nine of them are rising, then that's good. Too many trending lower could spell a problem for a bullish trade.

Finally, after checking the general market and checking the industry health, I'll look at the stock. On the weekly or monthly scale, if the stock has been trending lower for years, then I won't buy it. If it's been making new highs, trending upward in a nice 30‐ to 45‐degree slope, then I feel reassured that the uptrend will continue. That's a momentum play.

Ask yourself this: How long will the uptrend continue? Is buying now closer to the start of the trend or the end? Of course, we won't know for sure until much later, but I want to avoid uptrends that end just after I buy. When that happens, it really pisses me off.

On a shorter‐term scale, look for overhead resistance and underlying support to help gauge where the stock might reverse.