Читать книгу Encyclopedia of Chart Patterns - Thomas N. Bulkowski - Страница 30

Figure 1.6 shows a rare setup on the weekly chart, but it's a variation of the pattern shown in the prior figure.

Figure 1.6 A pothole setup happens after a drop and flat base.

The company runs into trouble that lasts for the long term (months). That trouble takes price down from A to bottom at B. At B, the bears want to see the stock continue to drop, but bottom fishers like me see a good value. Buying demand keeps the stock from dropping much farther. A stalemate emerges with neither the bulls nor the bears winning, so the stock just lines sideways (the B to C move).

If the B to C move represents a highway, then CD is a pothole. It's a bear trap, though. Price drops to C and makes another bottom at D, forming a double bottom in this example. The CD move can represent any bullish pattern, like a head‐and‐shoulders bottom or triple bottom. Anyway, price climbs out of the hole and climbs and climbs and climbs (E).

If you're lucky, the stock will rise like it did here, but don't depend on that happening. I also find this example suspicious because it happens in 2013–2014, the same period as Figure 1.3. Still, it provides the template for the pothole setup.

The key to this pattern is the stock forming a bottom (flat base) followed by a pothole. Make sure the flat base appears after a downtrend. You don't want to go long if price trends up into the pattern (like Figure 1.5). See if you can find a reason why the stock wants to climb (during E in Figure 1.6). The reason could be a good quarter with a positive future outlook issued by the company. Maybe the cost of ingredients is going down or the company can raise prices on the goods they sell because the market for widgets is firming up.

If you look back at the figures in this chapter, they all have a flat base, a period of time where the stock goes horizontal. After that horizontal move, a pattern appears. In the first four figures, price drops (after the horizontal move). In the last two figures, a double bottom reversal sends price higher, at least for a time.

If you research these setups (that is, find examples in the stocks you trade), that will give you the confidence to trade a similar setup when it appears in a stock you'd like to own.

Here's another idea to help ease the research burden.