Читать книгу Encyclopedia of Chart Patterns - Thomas N. Bulkowski - Страница 133

Since descending broadening formations can break out either up or down, I show both views of failed breakouts. The first one, Figure 10.5, is characterized by the telltale partial decline in late November. From there, the stock climbs and eventually pierces the top trendline, as predicted.

Once price closes above the trendline, you would expect it to throw back to the formation top and resume the upward trend. In this situation, price reverses at 45 and returns to the formation proper—a classic throwback. Unfortunately, instead of rebounding and heading higher like a typical throwback, the stock continues down. It does more work inside the chart pattern before shooting out the other side in a straight‐line run.

Had you bought this stock after the upward breakout, you would have seen the stock decline from a purchase point of about 44.50 to a low of 36.88. A stop‐loss order placed at the bottom of the chart pattern would have gotten you out at 39, still a hefty decline. However, if you'd held onto the stock (not recommended, by the way), it would have been rewarding. The low occurred on 8 April (not shown), and it turned out to be the lowest price reached during the next 2 years. The stock hit its peak in early November 1993 at a price near 60.

Figure 10.5 A descending broadening formation appears with price that fails to continue moving up. The partial decline suggests the ultimate breakout will be upward, but the rise falters and price moves down instead.

Figure 10.6 This descending broadening pattern (left) results in a 5% failure. A broadening top formed in early November.

Figure 10.6 shows a more harrowing tale because it involves a short sale. Investors watching the sharp 2‐day decline beginning 14 October 1994 would be tempted to short the stock the next day. Had they done so, or even waited a few days, they would have opened the trade near the low. From that point on the stock moved higher, back into the formation before ultimately soaring out the top. If you were a novice trader and had not placed a stop on your short sale, your loss would have taken you from a low of 24.38 to 53, where it peaked near the end of the study.

The figure represents a failure type I call a 5% failure. That happens when price breaks out in a given direction and moves no more than 5% before crossing the pattern and breaking out in the new direction. This type of failure can turn a small profit into a large loss if stops are not used.