Читать книгу Encyclopedia of Chart Patterns - Thomas N. Bulkowski - Страница 45

Figure 2.3 shows an example of a failed bearish AB=CD pattern (labeled as turns ABCD). The pattern fails in multiple ways. The first is that price doesn't make it up to the predicted point D.

Turn A has a low price of 134.82, B has a high of 148.28, and C has a low of 139.95. That gives a BC/BA retrace of .618, so the turn qualifies as a valid AB=CD. It predicts that point D should be at 153.41 using the formula: D = (B – C)/Ratio + C.

As the figure shows, point D falls well short of the target, which I show as F. Instead, price rises only to D before dropping to E. Imagine that you wanted to trade the anticipated rise to point D by buying the stock soon after turn C. You placed a stop a few pennies below C, and you would have been stopped out at E, which reached a low of 139.79, slightly below the low at C.

As I mentioned in the Identification Guidelines, there can't be a low below C on the way to the calculated point D. Point E stops the search for D because it's below the low at C. If you ignore that rule, then you have discovered the second failure type.

Figure 2.3 Price is supposed to turn down at F, but the search for point D ends when point E is below C.

The second way this AB=CD fails is when price continues rising instead of turning at D. If we ignore the lower low violation at E and assume price climbs to F, where turn D should be (153.41), then look what price does. It continues rising, doesn't it? So price fails to turn at the new target D and moves to G, peaking at 158.77, well above the 153.41 target. Shorting the stock at F would have tested a trader's courage against a rising price trend when the stock climbed to G.

Look back at Figure 2.2 where it shows another example of how the pattern fails to see price decline much after D. Price drops from 67.36 (point D) to 65.22 (point E), a drop of 2.14 points or 3%. Could you make money shorting the stock at D, knowing that if you traded it perfectly, you'd make 3%?

If you owned the stock (long) and sold at D thinking price would drop, you'd be happy that the stock dropped to E, but your joy would turn to sadness when the stock continued climbing up to F and beyond. It would say you'd made a mistake.

Of course I chose Figure 2.3 to highlight the failure of this pattern to perform as expected. That's what the Focus on Failures section is supposed to do. In the next section, we'll see what the numbers say about how this pattern behaves.