PATTERNS -- So These REALLY Work???
- Thread starter al c.
- Start date
This is just an interesting little stock that came up on my scan. There are some pluses and minuses to it, but let the market, specifically volume, give you the clue as to what to do.
If you look back on this chart alone, you'll see this pattern repeated, followed by some nice moves. Although it appears I have drawn a simple rising wedge, the scan is actually for NR7/ID's with a low near term historical volatility. Essentially, these criteria quantify the triangles, wedges, pennants, and flags.
It is a fact that volatility cycles. And it is a fact that stocks trend and consolidate. Combining the two facts produces this setup.
If you look back on this chart alone, you'll see this pattern repeated, followed by some nice moves. Although it appears I have drawn a simple rising wedge, the scan is actually for NR7/ID's with a low near term historical volatility. Essentially, these criteria quantify the triangles, wedges, pennants, and flags.
It is a fact that volatility cycles. And it is a fact that stocks trend and consolidate. Combining the two facts produces this setup.
in so would you trade that whichever way it breaks or only to the long side? i also presume that it's 200MA this baby crossed not so long ago and its fixing to do a cross with 50MA. so i guess trend is up. where would your triggers be? where would your stops be? where would your targets be? i have a general idea but would like to hear (I mean see on a chart) your specifics. Thanks 
T'kay you have it dead right, trade either way it breaks, as long as there is a substantial volume increase. That is the clue I mentioned before. Typically the break will go for 1-3 days on much higher volume, then pause or pullback on much lower volume. An alternative to trading the first break is waiting for that pullback.
Right again, that red line is the Mac Daddy 200 day sma. I use the 40 sma instead of the 50, just preference really, so that is the blue line. Your plan to trade in the direction of the trend is the best way to go, but that is too much like smart for me so I'd trade it either way.
More importantly though, I drew the pattern just to help visualize the setup. The real play here is not the break of the triangle, but the break of today's high or low... tomorrow. The beauty of the Narrow Range Inside Day trade is, by definition, the risk will be small because of the inside day. If you wanted to trade this from the long side only because of the moving averages, and the price breaks out from today's high tomorrow, then your stoploss should be 7-10 cents - 1 tick- below the low of today.
I have to leave for soccer right now, when I get back I'll post a chart that better describes the setup.
Btw, Tony Crabel is first credited with describing this setup, and Larray Connors and Linda Raschke added the volatility part. It is mention in several books and I know that both Connors and Raschke continue to include it in their pay services. I mention this because if someone is trying to get and keep business, they don't put out things that don't work.
Back in a bit.
Right again, that red line is the Mac Daddy 200 day sma. I use the 40 sma instead of the 50, just preference really, so that is the blue line. Your plan to trade in the direction of the trend is the best way to go, but that is too much like smart for me so I'd trade it either way.
More importantly though, I drew the pattern just to help visualize the setup. The real play here is not the break of the triangle, but the break of today's high or low... tomorrow. The beauty of the Narrow Range Inside Day trade is, by definition, the risk will be small because of the inside day. If you wanted to trade this from the long side only because of the moving averages, and the price breaks out from today's high tomorrow, then your stoploss should be 7-10 cents - 1 tick- below the low of today.
I have to leave for soccer right now, when I get back I'll post a chart that better describes the setup.
Btw, Tony Crabel is first credited with describing this setup, and Larray Connors and Linda Raschke added the volatility part. It is mention in several books and I know that both Connors and Raschke continue to include it in their pay services. I mention this because if someone is trying to get and keep business, they don't put out things that don't work.
Back in a bit.
mr. long,
i certainly hope you are shorting this stock. holding BBI short here.
surfer
The chart from my previous post no longer qualifies as an NR7ID setup. The setup is actually scanned for EOD by definition. But I will provide a chart showing this setup in the post after this. Yeah, I know.... oh boy, you can hardly wait.
How to draw the pattern can be fairly subjective. I can just as easily draw a wedge and justify it as I can an ascending triangle, which I have drawn. But inspection shows that the highs of today and yesterday did not take out the close from the local high several days ago, so a horizontal line is drawn there.
The process isn't exact, nor is it meant to be. It is meant to provide a gross visualization of price activity. Larry Williams has been quoted as saying something to the effect of, "it's lucky for me I have a dull pencil."
I like to use closing prices versus intraday prices when trading breaks from these patterns. Sure I might miss a few cents, but I won't get faked out intraday either. So a close outside the pattern is a go..... when it is accompanied by strong volume.
The classic break - classic meaning that which is described by Edwards and Magee - occurs 1/2 - 2/3 of the way thru the pattern. The farther into the apex the price goes, the less likely there will be an easily recognized break.
An ascending triangle has been shown to be a continuation pattern. However, if the price breaks down instead of out, it doesn't really matter.
What does matter is that a period of consolidation has been identified, and the trader is prepared to take advantage of the next trending move, whichever way it goes.
How to draw the pattern can be fairly subjective. I can just as easily draw a wedge and justify it as I can an ascending triangle, which I have drawn. But inspection shows that the highs of today and yesterday did not take out the close from the local high several days ago, so a horizontal line is drawn there.
The process isn't exact, nor is it meant to be. It is meant to provide a gross visualization of price activity. Larry Williams has been quoted as saying something to the effect of, "it's lucky for me I have a dull pencil."
I like to use closing prices versus intraday prices when trading breaks from these patterns. Sure I might miss a few cents, but I won't get faked out intraday either. So a close outside the pattern is a go..... when it is accompanied by strong volume.
The classic break - classic meaning that which is described by Edwards and Magee - occurs 1/2 - 2/3 of the way thru the pattern. The farther into the apex the price goes, the less likely there will be an easily recognized break.
An ascending triangle has been shown to be a continuation pattern. However, if the price breaks down instead of out, it doesn't really matter.
What does matter is that a period of consolidation has been identified, and the trader is prepared to take advantage of the next trending move, whichever way it goes.
Hey surf,
If I were short BBI, I would still be short BBI. If the macd is telling the truth, you have a nice divergence in your favor. Clearly however, you don't have to wait for the 3 points against you to occur to exit the trade. The local high, having been tested this week, would be my exit. And if the trade still looks good, perhaps you'll be able to enter at a better price. As if I need to tell you... huh?
I am not short that chart, it just came up as an intraday NR7ID and looked like a good one to post for discussion. Unfortunately it broke down a bit and no longer is a candidate.
But here is one that occured Monday. The symbol is CLE Claires Store Inc. BJ looks very similar so both can be studied as very nice examples of the NR7ID at work. BJ is BJ's Wholesale Club, so I guess there was some retail thing going on. LTD and TGT were also on the list but they were victims of the nemesis of this setup, the outside day. And yet, there is a positive to that too.
Take a look at the CLE chart. Starting from the left, there is a violet line beneath an NR4ID. The NR4 is another "popular" range, so you can expect it to work too. The real deal though is that it is an inside day, which manifests compressed volatility.
The brown line is just beneath an inside day.
The two blue lines indicate NR7ID's. The volatility was not as low for the second one as it was the first, but in both cases there is some sideways action prior to the next move.
This trade is intended to be a 1-4 day trade using trailing stops. I have rarely traded this setup per se, but have looked at it on and off for years. I am presently working it in to my trading plan.
The nemesis of this setup is the outside day. But, the beauty of this setup is that even an outside day can be profitable. The proper way to trade this setup is to have a stop and reverse order in at the opposite extreme from your entry. The narrowness of the narrow range day makes the loss very reasonable, and many times the reverse negates the loss, or very nearly does so.
One way to filter the trades is to determine the limit of risk you are willing to accept, and take only those trades that are within that limit. Another way is to take only those trades that are in the same direction as the prevailing trend.
The profit target on these types of trades should be consistent with the reward: risk ratio you select. The minimum acceptable is 1:1, so if the length of the ID bar is .50, then the profit target is at least .50.
If I were short BBI, I would still be short BBI. If the macd is telling the truth, you have a nice divergence in your favor. Clearly however, you don't have to wait for the 3 points against you to occur to exit the trade. The local high, having been tested this week, would be my exit. And if the trade still looks good, perhaps you'll be able to enter at a better price. As if I need to tell you... huh?
I am not short that chart, it just came up as an intraday NR7ID and looked like a good one to post for discussion. Unfortunately it broke down a bit and no longer is a candidate.
But here is one that occured Monday. The symbol is CLE Claires Store Inc. BJ looks very similar so both can be studied as very nice examples of the NR7ID at work. BJ is BJ's Wholesale Club, so I guess there was some retail thing going on. LTD and TGT were also on the list but they were victims of the nemesis of this setup, the outside day. And yet, there is a positive to that too.
Take a look at the CLE chart. Starting from the left, there is a violet line beneath an NR4ID. The NR4 is another "popular" range, so you can expect it to work too. The real deal though is that it is an inside day, which manifests compressed volatility.
The brown line is just beneath an inside day.
The two blue lines indicate NR7ID's. The volatility was not as low for the second one as it was the first, but in both cases there is some sideways action prior to the next move.
This trade is intended to be a 1-4 day trade using trailing stops. I have rarely traded this setup per se, but have looked at it on and off for years. I am presently working it in to my trading plan.
The nemesis of this setup is the outside day. But, the beauty of this setup is that even an outside day can be profitable. The proper way to trade this setup is to have a stop and reverse order in at the opposite extreme from your entry. The narrowness of the narrow range day makes the loss very reasonable, and many times the reverse negates the loss, or very nearly does so.
One way to filter the trades is to determine the limit of risk you are willing to accept, and take only those trades that are within that limit. Another way is to take only those trades that are in the same direction as the prevailing trend.
The profit target on these types of trades should be consistent with the reward: risk ratio you select. The minimum acceptable is 1:1, so if the length of the ID bar is .50, then the profit target is at least .50.
Quote from inandlong:
Hey surf,
If I were short BBI, I would still be short BBI. If the macd is telling the truth, you have a nice divergence in your favor. Clearly however, you don't have to wait for the 3 points against you to occur to exit the trade. The local high, having been tested this week, would be my exit. And if the trade still looks good, perhaps you'll be able to enter at a better price. As if I need to tell you... huh?
I am not short that chart, it just came up as an intraday NR7ID and looked like a good one to post for discussion. Unfortunately it broke down a bit and no longer is a candidate.
But here is one that occured Monday. The symbol is CLE Claires Store Inc. BJ looks very similar so both can be studied as very nice examples of the NR7ID at work. BJ is BJ's Wholesale Club, so I guess there was some retail thing going on. LTD and TGT were also on the list but they were victims of the nemesis of this setup, the outside day. And yet, there is a positive to that too.
Take a look at the CLE chart. Starting from the left, there is a violet line beneath an NR4ID. The NR4 is another "popular" range, so you can expect it to work too. The real deal though is that it is an inside day, which manifests compressed volatility.
The brown line is just beneath an inside day.
The two blue lines indicate NR7ID's. The volatility was not as low for the second one as it was the first, but in both cases there is some sideways action prior to the next move.
This trade is intended to be a 1-4 day trade using trailing stops. I have rarely traded this setup per se, but have looked at it on and off for years. I am presently working it in to my trading plan.
The nemesis of this setup is the outside day. But, the beauty of this setup is that even an outside day can be profitable. The proper way to trade this setup is to have a stop and reverse order in at the opposite extreme from your entry. The narrowness of the narrow range day makes the loss very reasonable, and many times the reverse negates the loss, or very nearly does so.
One way to filter the trades is to determine the limit of risk you are willing to accept, and take only those trades that are within that limit. Another way is to take only those trades that are in the same direction as the prevailing trend.
The profit target on these types of trades should be consistent with the reward: risk ratio you select. The minimum acceptable is 1:1, so if the length of the ID bar is .50, then the profit target is at least .50.
I'm glad to see that this thread is still drawing some interest.
FWIW - here is how I see BBI, it looks like it may be a good short.
thanks,
Al C.