Читать книгу Encyclopedia of Chart Patterns - Thomas N. Bulkowski - Страница 152

Advanced Micro Devices Inc. (AMD) formed a broadening top in the first half of 2001. Here's my notebook for the trade entry: “2 August 2001. I bought at the market, filled at 19.64. The stock has bounced off the bottom of a broadening top. I hope prices will race across the pattern, but expect them to stall at 22, with eventual push to 25. Downside is old low at 16, or lower [trendline] boundary. Upside is 25, with possibilities of a climb into the high 30s. Resistance at 22, 25, 30. I expect a climb to 25 where it may be time to sell. Book score is +1, assuming an upward breakout.”

The book score is based on my book, Trading Classic Chart Patterns, which describes a scoring system to help improve selecting patterns that outperform. In this case, it didn't apply because the breakout was downward.

Notice that I didn't dwell on the potential loss (in percentage terms). Had I pondered that, I might have avoided this losing trade.

 Lesson: Don't forget to assess the potential loss and avoid the trade if the loss is too high.

I bought the day the stock peaked. It dropped from there and soon was at the chart pattern's bottom trendline and dropping below it.

Here's my notebook: “15 August 2001. I sold at market. Fundamentals have changed with IBM saying they will no longer buy AMD‐based computers because customers prefer Intel. The stock has completed a partial rise and is expected to break out downward from the broadening formation. Yesterday, [the stock] closed below the 16 stop price, so it was time to sell. With September [traditionally the weakest month of the year] and October approaching, it's probably wise to exit the market. On the other hand, I don't really see the stock going much lower and expect that I sold near the bottom.”

In fact, the stock continued lower. Much lower. I sold at 15.70 for a 20% loss, but the stock bottomed at 7.69 or 51% below my sale price. As big as my loss was, I'm glad I sold.

Looking at the chart for the buy, the stock was well away from the bottom trendline, moving higher at a brisk pace (6 days in a row, it made a higher high). Maybe that was an indication of weakness. How long can the stock continue such a strong push upward? Perhaps running the chart through a momentum indicator would have provided a clue to the underlying weakness.

In this trade, I entered late but made a perfect exit (on the day price broke out downward).

 Lesson: Before buying, don't be afraid to use technical indicators to uncover a weakening trend.