Читать книгу Encyclopedia of Chart Patterns - Thomas N. Bulkowski - Страница 92

Table 7.10 shows trading tactics.

Measure rule, targets. Use the measure rule to help determine how far price may rise after the breakout. The lower portion of the table shows the numbers. Before I get there, let me explain how to use the measure rule.

Measure the height of the big W by subtracting the lower price of the two bottoms from the price of the highest peak between the two bottoms. Add the height to the peak between the two bottoms to get a full‐height target. The table says that price will reach that target 74% of the time in bull markets.

If you use different multiples of the height (half, 2×, or 3×), you will see different hit rates. For example, if you like to hold onto a stock and target three times the height, compute the height as already described, multiply it by three, and add it to the breakout price. Price will reach the target 39% in bull markets but only 17% in bear markets.

Stop location. Use Table 7.7 to help determine where to place a stop. You can use a volatility stop, which is based on how volatile a stock is, to locate your stop. Often I'll stick a stop below a nearby minor low and double‐check that with a volatility stop. See the Glossary for details on volatility stops.

Return to launch price. Look back at Figure 7.1. Point A is the launch price. It's the price where the stock begins the decline in earnest, leading down to the big W. Unfortunately, the launch price can be hard to determine in some cases, so I use the measure rule to give better targeting guidance.

Table 7.10 Trading Tactics

Trading Tactic	Explanation
Measure rule	Measure the height of the pattern from the lower of the two bottoms to the high between the two bottoms. Add the height to the high price between the two bottoms. The result is the target price. Large percentage moves will be unlikely. The bottom portion of the table shows how often the measure rule works.
Stop location	Place a stop at the location of your choice, using the results in Table 7.7 as guidance.
Launch price	Determine where the launch price is and use that as a target.
Higher second bottom volume	If the right bottom shows higher volume than the left one, expect better performance (in bull markets).

Description	Bull Market	Bear Market
Percentage reaching half height target	88%	77%
Percentage reaching full height target	74%	55%
Percentage reaching 2× height	53%	31%
Percentage reaching 3× height	39%	17%
Return to launch price	70%	51%

Table 7.11 Special Features

Description	Bull Market	Bear Market
Lower left bottom, performance	46%	29%
Lower right bottom, performance	47%	30%
Even bottom, performance	38%	34%*
Higher left volume, performance	45%	31%
Higher right volume, performance	49%	27%
Median days from launch price to left bottom	22	21
Median days from right bottom to ultimate high	92	51
Large rise between valleys, performance	48%	30%
Small rise between valleys, performance	44%	29%
Median rise between valleys	14%	26%

^* From 18 samples.

However, the stock can return to the launch price after a big W breaks out. Keep that in mind when setting targets. Look for price to stall just short of the launch price. Figure 7.2 shows an example of that. The launch price is point A and price climbs to F, which is just below the price of A.

The last line in the table shows the stock returns to the launch price 70% of the time, on average, in bull markets. To use this finding, convert into a percentage the distance from the current price to the launch price. If it's a high percentage, then it'll probably be unrealistic.

You can run the potential gain by Table 7.3. For example, if the current price is 40 and the launch price is 50, that means a gain of 25% or ((50 – 40)/40 × 100). Table 7.3 says that almost half (46%) will fail to see price rise more than 25%.

Table 7.11 shows features that might improve trading a big W.

Lower valley performance. I checked the performance of big Ws where the price of the left bottom was above, below, or equal to the right bottom. There wasn't much of a performance difference except for big Ws where the price of both bottoms was the same. When that happened, performance suffered, and quite substantially.

Higher bottom volume. I found that if the right bottom of the big W has volume higher than the left bottom, patterns outperform in bull markets and underperform in bear markets. Because the bull and bear market values show opposite performance results, it concerns me that this finding won't be reliable. Use it with caution.

Time to launch. I measured the time from the launch price to the first bottom and compared it to the time from the second bottom to the ultimate high. The numbers show that the drop into the big W is short, about three weeks, but the recovery is long. In bull markets, the median is about four times as long.

Rise between valleys. I compared the height of the peak between the two bottoms of the big W to performance. If the rise was taller than the median (measured as the height from peak between the two bottoms to the lower of the two bottoms divided by the price of the lower of the two bottoms), then performance improved. In bull markets, the differences are pronounced compared to bear markets.