Читать книгу Encyclopedia of Chart Patterns - Thomas N. Bulkowski - Страница 125

In September 2009, XL Group (XL) started forming a right‐angled and ascending broadening pattern. It was a long one, lasting until June 2010. The stock made a partial rise, but that failed to see price break out downward. That didn't bother me because I trade from the bullish side.

I hid in the bushes and waited for the upward breakout. The breakout happened on 15 September 2010, just over a year after the pattern began. I bought 5 days later and received a fill at the market open of 20.99. The breakout price was 20.28 (the opening price the day after the breakout), so I bought near the optimum entry price.

What was my stop price? None. Why? Because this was a long‐term holding. I noted that the downside was 15.66, the bottom (start) of the broadening pattern. If the stock dropped that far, it would hand me a (potential) loss of 25% (however, the lowest the stock dropped was 17.69, about a year after I bought). The potential loss was well above the usual 8% or less I like to see, but this wasn't a trade, but an investment. I made allowances.

Upside targets were 28, 56, and 69. I also made mention in my trading notebook about this stock breaking out of congestion. It was a small knot, about a week long of sideways price movement. I seemed excited about that for some reason.

Indicators? Sure. Why not? Wilder RSI was overbought. Commodity channel index said sell 5 days ago (the day price broke out upward, which was a bad call). Bollinger bands were following volatility higher. It suggested waiting for a throwback that didn't happen (and a missing throwback suggests better performance, of course, from Table 9.4).

My computer informed me that volume was not rising consistently over the past 3 weeks, and warned of a higher failure rate for the trade because of it. Hmm. However, it patted me on the back about picking a stock with a rising relative strength against the S&P 500 index (that is, the stock was outperforming the general market).

Here's my notebook: “Buy reason: congestion breakout with high long‐term potential. Risk 25% versus >100% reward. Could be exposed to hurricane losses if any storms brush [the] east coast. Its reinsurance business could get nailed, [caused by] hurricane losses. Placed a market order to buy at the open since the daily swing is all of 70 cents. Big deal. Bid/ask spread suggests an open higher by 3 cents, but we'll see. Futures at +6.50, so mildly higher open.”

Nothing really exciting there except for the potential to double my money. All I had to do was hold on long enough for that to happen.

Fast forward to 2018. Along the way, the stock dropped from peak to valley 30%, 25%, and 28%, in that order, but the stock always recovered. This was a buy‐and‐hold situation, and I was looking to make the big bucks, a doubling of my money.

On March 5, the company announced that it would be taken over by another company. The news upset me. Why? Because I felt they were buying the stock on the cheap. On the weekly chart, this was a cloudbank play, with the base of the cloud at 56 and the top of the cloud at 82. Their offer took me out of the stock at 57.60, below where the stock had once traded (at 82). Recall, my upward target was 69 and they were cashing me out just above my middle target, 56.

I made 198% on the trade, including dividends. I almost tripled my money, but it took 8 years to do it. In terms of dollar profit, this was my second most profitable trade (but well down the list in percentage terms), so I put a lot of cash behind it.

 Lesson: Good things can happen to people who wait.

 Lesson: For a buy‐and‐hold investment, you have to be able to tolerate large price swings.