Читать книгу Encyclopedia of Chart Patterns - Thomas N. Bulkowski - Страница 23

Finding the ultimate low for bearish chart patterns works similarly. Let's take the example of the head‐and‐shoulders top at GEH. We see the left shoulder at G, the head at E, and the right shoulder at H. Price confirms the pattern when price closes below the neckline. Because the neckline slopes downward in this example (not shown), I recommend entering the trade when price closes below the right armpit, which I show as the horizontal line at I. You'd short at the open the next day.

If you can program your computer to find head‐and‐shoulders tops, that's how you enter a trade. Nothing magical here.

What about the exit signal? Again, we could use a stop‐loss order, but we already know that's not going to work from our previous example. We'd be testing various locations of the stop and not the chart pattern. So let's find the ultimate low.

Two rules:

1 Find the lowest low before price rises 20%, measured low to close.

2 If price closes above the top of the chart pattern, then the search for the ultimate low ends, and we use the lowest low found after entering the trade.

In this case, price breaks out downward from the head‐and‐shoulders top, drops to J, and then rises. The low at J is 14.60, so a 20% rise is 17.52. A close at 17.52 or higher will end the search for the ultimate low.

When price closes at K (at or above 17.52), the search for the ultimate low is over. We've found the ultimate low, which is J.

If K was a bit higher, then rule 2 would come into play. That's because price would close above the top of the head‐and‐shoulders, stopping the search for the ultimate low.

In this example, we are trading this head‐and‐shoulders perfectly. We are entering the trade at the opening price the day after a downward breakout, and we are closing it out at the ultimate low, the lowest low before price rises. A perfect trade. We are testing how well this chart pattern works. We're not testing stop‐loss order placement or MACD or a moving average crossover scheme.

The performance of most of the chart patterns in this book follows these two ideas: the ultimate high and the ultimate low. For bullish patterns, I look for the ultimate high. For bearish patterns, I look for the ultimate low.