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Thomas Bulkowski’s successful investment activities allowed him to retire at age 36. He is an internationally known author and trader with 30+ years of stock market experience and widely regarded as a leading expert on chart patterns. He may be reached at

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Industrials (^DJI):
Transports (^DJT):
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Nasdaq (^IXIC):
S&P500 (^GSPC):
As of 08/17/2017
21,751 -274.14 -1.2%
9,152 -224.77 -2.4%
734 -5.20 -0.7%
6,222 -123.20 -1.9%
2,430 -38.10 -1.5%
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10.1%
1.2%
11.3%
15.6%
8.5%
Tom's Targets    Overview: 08/14/2017
22,250 or 21,500 by 09/01/2017
9,700 or 8,900 by 09/01/2017
750 or 710 by 09/01/2017
6,500 or 6,150 by 09/01/2017
2,525 or 2,425 by 09/01/2017

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April 2009 Headlines


Archives


Thursday, 4/30/2009. Dow Pullback to Rising Wedge

Price targets for the indexes

Let me welcome all new visitors to ThePatternSite.com. Not only does this website contain a blog, which you are reading, but it also contains almost 450 original articles about price patterns and other related topics.

I mention this because I just checked my traffic statistics. Over 8,000 pages (from other websites) link to ThePatternSite.com and it is visited monthly by over 50,000 people. And if more than 1% of you would click on an ad of interest or shop Amazon.com by clicking on any picture of my books (and you can buy anything while there...like diapers. I hear they are cheap), then I would be grateful. Those funds help defray the cost of running this site and gives the government more money to waste like the $328,000 it cost for Air Force One to fly around New York City for a photo op. That's more than I make in a week!

I added three home builders to my shopping list on Saturday, and I am pleased that announce that BZH is up 46%, HOV is up 43%, and SPF is up 17%, all measured from the open on Monday to their highest price since then. I only wish I had bought some. Sigh. On two of them, I decided to wait for the earnings announcement coming in early May. They may drop back after that.

Tina asked in an email today (Wednesday as I write this) if the chart pattern indicator (CPI) said sell a few days ago. Circled in blue in the picture on the upper right is what she is talking about. That is a screen shot from the top of this page.

Yes, for the last few weeks, the indicator has flipped from buy to sell and then erased its sell signal a day or two later. As I outline in the Warnings section of the CPI page, the indicator can flip from buy to sell to buy or whatever it chooses for up to 7 calendar days after a signal. Beyond that and the signal will remain solid. Thus, do not depend on the indicator until at least a week after the signal has passed (but it is usually good after 3 trading days). I plan to add some type of strength indication to the signal (like "weak sell" or "strong sell" or even multiple arrows) when I have time.

Natasha asked in another email if the Dow target is still firm. I show that circled in red in the screen shot. The page top shows my targets for the indexes, and I update them as the indexes hit the price or time targets (two did today). The arrows (red or green) point to the direction I expect the index to take, down in this case for the Dow.

If you click on the blue hotspot, a small window will appear that explains my reason for the target. That hot spot is only active at the top of this page, not on the picture.

A rising wedge in the Dow Industrials (^DJI)

Let's discuss the Dow. I show what is happening in the Dow industrials in the associated chart. A rising wedge chart pattern appears in the Dow and other indexes. In this example, price has broken out downward and that happens 69% of the time. Now, price is pulling back to the wedge boundary and a pullback occurs 63% of the time in a bull market. I say "bull market" because the S&P has climbed more than 20% off the low, denoting a change from bear to bull.

If you read the article about pullbacks at the link, you will discover that price continues downward 87% of the time. Although I am bullish on the market (I have just 11% remaining in cash and would be at 0 if earnings would pass so I felt it safe enough to spend more), I am not going to fight that kind of statistic. Thus, I see weakness in the Dow.

Overhead resistance appears on the chart as two green lines just above where the index is now. That also bolsters the case for a continued horizontal move or a slight drop down.

News reports say that the FED is seeing the recession easing. That adds to the case of a continued bullish move in the indexes. Others warn that there are still storm clouds on the horizon. Maybe we are all right, but it is just a matter of timing.

-- Thomas Bulkowski

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Tuesday, 4/28/2009. Tutorial Tuesday: What You Can Learn From Review of Trades

Have you looked at your trades recently? Often, I wait for year end before looking them over, but I want to pass on to you a few tips based on my results. If you want to check your trades, I have created a sample Excel spreadsheet that does some of what I will be discussing. It requires you to enter details of each trade and if you do this as you trade, it makes it easier to track them than trying to type all of your trades in at one sitting.

My spreadsheet shows trades since I began investing nearly 30 years ago. I sorted them by the sale date and looked at the four combinations of winning and losing trades. Here is the result.

 WinLose
Win29%18%
Lose18%35%

Sorted by SELL date

You read this table in row-column order. For example, a losing trade (row) is followed by a winning one (column) 18% of the time. I highlight the entry in red. The table says that when I take a loss, I should avoid the next trade because it is twice as likely to become a loss (35%) than a win (18%). That is useful information, but only if I trade one stock at a time (which I do not do). I hold a diversified portfolio of stocks.

Sorting the results by buy date changes the results.

 WinLose
Win25%22%
Lose22%31%

Sorted by BUY date

Here we see results that are more evenly distributed, meaning the numbers are closer to the same value. If a position ends in a loss, the next one is likely to be a loss, too. If the trade is a winner, the next trade is likely to be a winner also.

What these two tables tell me is that if I sell a stock for a loss, I should be extra cautious about placing a new trade because it could also end in a loss. That is common sense, or course, but it didn't quite jive with the results. Since I diversify my holdings, I could sell several positions because of a short-term retrace and hold others (like utilities, which I like for the income and cap gains if you buy them cheaply enough). Clearly, though, adding new positions when the market trends upward is smart. Avoid adding new positions when the market is dropping is also smart. I am sure some of you found that out in 2008 (downtrend) and from March 2009 (up trend).

Best Day of Week To Buy and Sell

Sorting my buy orders by days of the week finds that buying a stock on Thursday results in the most losses. The fewest losses occur if I buy on Monday.

The positions that are winners show buy dates on Friday and the worst is buying on Monday. In fact, the numbers slide upward such that the later in the week I buy, the more likely it will be that I'll pick a winner.

This is different than using something like the S&P to test for up and down days. My results are based on actual trades.

Best Month to Buy and Sell

In this test, I used the gain or loss and mapped when I bought or sold shares. Based on the median values (since averages can be skewed by a few large values), the best time to buy is between August to December, preferably in September or March. On the sell side, the January to May period results in the best gains with a spike in May.

As many of you know, September is supposed to be the worst performing month for the Dow, so that also represents a good time to buy. There is also a saying "Sell in May and go away." That holds true for my trades.

Patterns that Never Fail

Next, I sorted trades by chart patterns or techniques for which I have never had a failed trade. They are listed below.

The numbers in parentheses are how many trades were made using that approach or pattern. In other words, the results are not reliable because I don't like to trade many patterns.

Patterns I Trade Often

  • Fibonacci retrace trades gave me the highest average profit, followed by rectangle bottoms, 1-2-3 trend change, fundamentals, and trendlines.
  • I do not average up (adding more to a rising position), but when I do, I make a lot of money.
  • Cup with handles, I know many of you like, and I won 75% of the time trading them, but the losses were larger than the gains. I don't like cups...
  • High and tight flags are supposed to be the best performing chart pattern and I have traded them often but not made much money.
  • I could only get indicators to work 33% of the time and took a big loss in the process.
  • The patterns or techniques traded most often are, in order, fundamentals (from my early days), symmetrical triangles (shows a profit but only 48% of the time), ascending triangles (shows a loss, so I do not trade them much), head-and-shoulders bottom (shows a huge loss, due to trades in one stock), averaging down (on buy and hold positions, I made big bucks), earnings flag (good gains when it works, which is only 38% of the time) and a rounding bottom (good gains, 70% success rate).

You can do a similar analysis to see what works for you.

-- Thomas Bulkowski

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Monday, 4/27/2009. Mental Monday: Fear of Success.

This posting is now located here.

-- Thomas Bulkowski

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Thursday, 4/23/2009. 3 Pointers for Picking Stocks

A bearded iris flower from the yard.

The flower is a bearded iris, I think, from my back yard. I show it just to add some color to the text.

Tip #1: Do your homework!

When I need some celery or something simple like that, I walk 3 miles round trip to the grocery store. Along the way, I have watched CiCi's pizza open a shop in a nearly vacant strip mall. I don't recall every seeing any customers visiting the shop, but its neon sign still glowed.

Until one day it didn't.

A few months later, Mario's pizza opened in the exact same location. If a pizza shop couldn't make it there, what makes them think another pizza joint would prosper? I know the small business administration frowns upon such things, and that is something you discover when you write a business plan for a new company.

Simple exercises such as scanning the parking lot to see how many cars are parked in front of businesses can be invaluable intelligence. Better yet is customer after customer exiting the store with arm loads of shopping bags full of goodies. Are people just visiting the shop or are they actually spending?

When I speak to clerks, I always ask them how's business. If they are happy, that tells me something, regardless of their answer. I remember talking with a Walmart greeter, the people that greet you at the front door, and mentioned benefits. Her cheery disposition changed in an instant to a deep scowl. That spoke volumes.

So, the first tip is Do your homework. Of course, when you talk about Cisco routers, it is more difficult to do your homework than it is for a retailer.

Tip #2: Check the competition.

Late last year, I became interested in chemical companies. They were dirt cheap and I knew they would take time to respond in a weak economy, but I thought I could pick up some companies at a good value. Then I heard that Lyondell might go under.

Lyondell is a chemical company that was purchased by Basell to form a new company called LyondellBasell in 2007. The news of a possible bankruptcy brought an end to my shopping for chemical companies. In fact, LyondellBasell declared chapter 11 bankruptcy on January 6, 2009, according to their website. At year end 2006, Lyondell had revenues of over $22 billion. If they could not survive in this economy, then what were the chances of another chemical company prospering?

Checking the competition mostly applies to news announcements like the one Lyondell made. Since the company was private, I ceased tracking it, but my antennae went up when I heard the name. Retailers are the same way. If their same store sales are down for one chain, many other chains might be suffering, too. Obviously, a company with rising comparable store sales (those open for at least a year) can mean a good play.

Tip #3: Do not buy a stock within 3 weeks of an earnings announcement.

On my buy checklist, I have a line that asks when is the next earnings announcement? I always try to find out. Yahoo!finance does a decent job of telling the exact date but sometimes they are wrong. [Go to finance.yahoo.com and click on the Investing tab. When the new screen appears, click on Earnings under Today's Events. You can enter a symbol and it will show the expected announcement date]. If that doesn't work, then just add 3 months to the last earnings announcement.

Why avoid buying three weeks before an earnings announcement? Because the announcement could take the stock down in a dead-cat bounce chart pattern. That is when the stock drops by 15% to 70% or more in one session. They are great if you are short the stock but they really hurt your portfolio if you own (long) the stock.

Those are three tips to make your shopping a more delightful experience. Just remember that everyone I speak to thinks the economy will have another down leg still to come. One points to commercial real estate (like Mario's going under, leaving the strip mall even more vacant) and another points to non-commercial mortgages resetting in 2010 and starting another banking crisis. All of this doom and gloom means, of course, that the market will soar. One can only hope.

-- Thomas Bulkowski

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Tuesday 4/21/09. Tutorial Tuesday: Focus on Fibonacci

An ABCD wave to illustrate Fibonacci ratios.

Many traders use Fibonacci ratios in their trading. I have found that they work for me and perhaps they can help improve your trading, too. Let's take a closer look.

The figure shows an ABCD wave. Think of each turning point as a peak or valley on the price chart. You will want to select turning points that are of the same magnitude. By that I mean you select large, major turning points with other big points or focus on four smaller turning points. You should probably avoid mixing them because that may give you unreliable results (but you can try it). Many software packages will draw the Fibonacci lines on your chart for you.

Assume that point A is at 10 and B is at 15. There are three main retrace values: 38%, 50% and 62%. How we derive those values and others is not important, nor is the Fibonacci sequence. If we take the distance from A to B and multiply it by the three Fib values, we get 5 x 38% = 1.90, 5 x 50% = 2.50, and 5 x 62% = 3.10. When you add those values to A or subtract them from B, you get three possible turning points: 13.10, 12.50, and 11.90.

If I want to buy the stock represented by the chart, I will wait for a 62% retrace and then pounce. That means placing a buy order at 11.90 in this example, or about where point C forms. Other Fibonacci retracement values are 79% and 86%.

To help predict when point C will arrive, you can apply the same math to the time scale. I show that with the points E, F, and G. If the time between E and F is 30 calendar days then multiply it by a 38% extension to get G: 30 x 38% = 11 calendar days. You can use trading days, if you wish, and maybe other extension values might work better, such as 18%, 27%, 62% and 162%. Since I don't use Fib extensions on the time scale, you will have to figure out what works best for your application. The answer (11 days in this example), marks a possible turning point on the time scale. You would add 11 days to F to get G. Point H might be a 162% extension of the EF move.

Let's say that you bought the stock at C. At what price will D arrive? Since this is not a retracement but an extension of the AB move, we can apply one of the extension values. For ease of use, I could use 1.18 (118%), 1.27 (127%), 1.618 (162%) and 2.618 (262%). The 38% extension (1.38) is one I like. We will use that in this example. The AB move is 5 points (10 to 15), so 38% of that is 1.90 which I add to the price of B (15) to get D (16.90). Thus, if I bought the stock at C, I would consider selling if the stock approached 17. It would not be an automatic sale, but I would search the area for overhead resistance.

The same math applies to downward price trends. Figure out the length of the first wave (use BC in this example) and calculate the retrace or extension of that move. Add the retrace value to C (for a higher target) or subtract the extension value from C to get a lower target.

-- Thomas Bulkowski

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Monday, 4/20/2009. Mental Monday: Are You a Centered Trader?

This posting is now located here.

-- Thomas Bulkowski

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Thursday, 4/16/2009. Mental Monday on Thursday. Secret to Trading Success: Commitment

This posting is now located here.

-- Thomas Bulkowski

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Tuesday, 4/14/2009. Tutorial Tuesday: Zero Cost Averaging

A bee caught on my flower.

I have attached a photo I took of a bee visiting a flower in my back yard. I thought this column needed some local color to spice it up.

# # #

With the markets zooming up from the March lows, you are all swimming in money, I'm sure. Here is a money management technique called zero cost averaging, and it is based on an article from the April 1998 issue of Stocks & Commodities magazine by Terrence Quinn and Kristin Quinn.

The idea behind zero cost averaging is to sell enough shares for a profit to equal the cost of those shares without selling them all. An example makes this clear.

Suppose you buy 1,000 shares at $6 each, for a cost of $6,000. If the stock rises to $10, you want to sell enough shares to get back your original cost and hold the remaining shares.

Suppose the stock does hit $10, then you sell 600 shares, receive $6,000 on the sale, and you're done. You got all of your money back (zero cost), but guess what? You still own 400 shares (you bought 1,000 and sold 600, leaving 400). That is zero cost averaging. The 400 shares you still own cost you nothing!

We can flip this around to determine how much to sell, too, using this equation:

BuyShares = KeepShares + (KeepShares * (100/PercentIncrease))
 
Where BuyShares is the number of shares you will need to buy;
KeepShares is the number you want to hold onto after selling the others;
PercentIncrease is the percentage you want to make on your money before selling.

For example, say you want to keep 100 shares of a stock after it rises 50%. BuyShares = 100 + (100 * 100/50)) or 300 shares. Say the stock is selling at $10. You buy 300 shares at a cost of $3000 and when the stock rises 50% to $15, you sell everything except the 100 shares you wanted to keep: 200 shares x $15 = $3000. The 100 shares you keep cost you nothing. You can hold them forever and not lose any money on the transaction, even if the stock were to go bankrupt (of course, the government doesn't see it that way. When you finally do sell those shares, they IRS will want to take their share. Think of it as your contribution to fund huge bonuses for CEOs when the government loans them your money).

The flaw in this strategy is that it requires price to move up in order to sell shares at a profit to get your money back. What if we create rules that say,

  • Buy 50% more shares if price drops 25%.
  • Sell 50% of the shares if price climbs 33%.
  • Keep 100 shares or more at $0 cost then stop trading.
  • Always round up to the next 100 shares (a round lot) when trading.

The following table shows a sample trade when the price bobs up and down between $9 and $12.

ItemPriceShares
Held
TradeCumulative
Cost
1.$120Buy 600-$7,200
2.$9600Buy 300-$9,900
3.$12900Sell (450) = 500-$3,900
4.$9400Buy 200-$5,700
5.$12600Sell 300-$2,100
6.$9300Buy (150) = 200-$3,900
7.$12500Sell 400 (0 cost)+$900
8. 100 +$900

  • 1. Buy an initial stake of 600 shares at $12 per share for a total cost of $7,200.
  • 2. Since price has dropped 25% to $9, buy 50% more shares (300) for a cost of $2,700 for a running cost of $9,900.
  • 3. Price has climbed 33% back to 12, so sell 50% or 450 shares. Since this is an odd lot, increase the share total to 500.
  • 4 to 6. Continue buying and selling.
  • 7. During steps 1 through 6, we check if selling all but 100 shares would result in 0 cost. If so, then we sell those shares and quit trading. In this case, selling 400 would make $4,800, leaving us with a profit of $900 and 100 shares in our portfolio at 0 cost.
  • 8. Stop trading this stock because we have at least 100 shares at 0 cost.

I chose 33% on the buy side instead of 25% to get the numbers to work out evenly. You can chose any numbers you want for the buy and sell sides. If price were to drop from $9 by 25% to $6.75, you would buy 50% more shares following the rules outlined. If it climbed from $12 to $16 (33% more than $15), you would sell 50% of your holdings, rounded up to the nearest 100 shares (or rounded down if selling would leave you less than 100 shares). At each step, check to see if selling all but 100 shares would leave you with at least 100 shares and a profit. If so, then sell those shares and stop trading this stock.

If you zero cost average like this, you can build a diversified portfolio of many stocks held at 0 cost. If any of the stocks were to go to $0, you would not lose any money. Again, all of the numbers are flexible here. You can buy and sell at 10% or 50% increments. You can look for 1,000 shares at zero cost instead of 100. You can use dollar values instead of percentages, like buy or sell if the stock price changes by $3 and only trade 200 shares at a time.

-- Thomas Bulkowski

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Monday, 4/13/2009. What Now Dow?

A daily chart of the Dow industrials (^DJI)

I am delaying Mental Monday's blog posting until Thursday because I feel a Dow update is more pressing.

This weekend, I received an email from Paul H. in Australia that asked for an in-depth forecast for the Dow. Here it is.

If you measure the rise since the Dow bottomed in March (point A, 6469.95) to the recent high (B, 8087.28), that is a change of 25%. Anything above 20% means we are in a bull market. Even on a close to close basis, we are still in a bull market. That may surprise many of you, so include me in your group.

Notice the top red arc pointed to by C. For many of the indexes I follow, the graceful turn reminds me of the start of an inverted an ascending scallop chart pattern. Think of the letter J flipped upside down and reversed, or the right half of an umbrella. If the Dow follows that pattern, we should see a dip appear that takes the Dow down 50% of the prior move (I measured this). That would drop the Dow down to 7278, shown by the horizontal blue line.

The narrowing of the price action, highlighted by the two red envelope lines suggests a large move ahead. Periods of low volatility follow periods of high volatility. Drawing Bollinger Bands on the Dow chart does not produce as pretty a picture as the one shown here, but the BBs are also narrowing, although to a much smaller degree. My lines just hug price and have no statistical value.

Starting this week, earnings will begin trickling in. If the market reacts like it did to Wells Fargo, then expect price to burst out upward. Lousy earnings would perhaps take it down following the inverted and ascending scallop pattern. My guess is the Dow will drift lower, the speed of which will depend on how shocked the market is with the earnings reports. After a 25% rise, you would think that the Dow needed a breather, so that also suggests a drop. A drop might also complete the head-and-shoulders top that I discussed in my March 9 posting.

-- Thomas Bulkowski

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Friday, 4/10/2009. Market Holiday!

The U.S. stock market is closed today, so no blog either.

-- Thomas Bulkowski


Tuesday, 4/7/2009. Tutorial Tuesday: A New Stock Picking Method!

A monthly chart of Cache (CACH)

I spent most of this weekend looking through the 564 stocks I follow on a daily basis, but using the monthly or weekly scale instead of the usual daily scale. The chart of Cache (CACH) shows an example of what I found.

Here was my search criteria:

  1. A line of overhead resistance;
  2. At least a double in price to reach overhead resistance;
  3. Good fundamentals and other factors.

I wanted to scan for stocks that have a wide appreciation potential between where they currently trade and where they used to trade in the last few years. That meant using the weekly or monthly scale because it shows price action from before the bear market began. My belief is this: If a stock was trading for years at, say, $10 but is now at $4, when the economy returns to normal, the stock will return to $10. I have not done extensive research on this idea, but I did find a few cases that worked.

Let's go through the numbers.

1. I looked for overhead resistance that formed a horizontal line of price movement, hopefully over several years. The chart shows this as a horizontal red line, stretching back as far as 2004 on this chart. I drew the line arbitrarily but mostly to highlight the movement during mid 2005 to mid 2006.

In the Cach example, the takeoff comes from a flat base which I show highlighted in the blue box (weekly scale with no price scale). A flag appears, but the flat base nor the flag are an integral part of the selection criteria. I just show them for fun.

2. The current price should be well below overhead resistance. I want to double or triple my money because it may take years for price to climb back up to the resistance level. In other words, I am looking for a homerun. In this example, price closed Monday at 3.06, which is well below the 15 line. For safety, I would look at price to show signs of reversing above 12. Thus, I am looking to quadruple my money on this stock.

3. I read at least four research reports on each stock, checking the stock's fundamentals and industry trends. I wanted to eliminate those that have a large amount of risk of bankruptcy. After all, this economy is not out of the woods yet. Stocks that were within 3 weeks of their earnings announcement should be avoided because of the tendency to dead-cat bounce on an earnings disappointment.

I found a few stocks that were exciting for various factors. HOTT is an example (but it does not qualify under this selection method). I put it on my shopping list on March 11 ($8.85) and it reached a high of 12.39 on Friday, a gain of 40%. I bought the stock and sold it the same day (March 12) because it took a dive on me and I thought I had made a mistake. Thus, my analysis was right but my staying power wasn't there. Instead of a tasty gain, I booked a 5% loss. Sigh.

With these stocks and the ones not listed here because I have already bought them, most are trading near their yearly lows. The upside potential is large and the downside risk is considerably smaller, but not zero. These are a volatile bunch, so I plan to maintain wide stops to give them every opportunity to advance. What I do not want to see is a loss of 25% or higher. I like to keep losses below 10%, but in this market with a buy and hold mentality, you have to give them room to grow. I anticipate holding them for years, waiting for my home run.

Be advised that I may not buy any of them. Things change quickly in this business... The list of stocks follows.

-- Thomas Bulkowski

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Thursday, 4/2/2009. Broadening Formation in Brazil Fund!

A daily chart of EWZ, an index fund for Brazil

I thought I would be a bit more responsive with Tom's Targets (see top of page), so when the chart pattern indicator switched to bearish a few trading days ago, I adjusted my targets lower.

Today (Wednesday, after the close), the CPI sell signal has disappeared. That happens from time to time, and that is why I consider the CPI a weekly indicator, and not especially handy for daily trading signals. With the unemployment report due out before the open this Friday, we could still see a resumption of the downward move. Thus, I will re-evaluate the targets this weekend. My guess is unemployment will rise, but the market will shrug it off by dropping maybe 100 points. It may close the day higher.

# # #

The chart shows the MSCI Brazil index fund (EWZ) on the daily chart. According to Yahoo!finance, the fund seeks

"to provide investment results that correspond generally to the price and yield performance of publicly traded securities in the Brazilian market, as measured by the MSCI Brazil index. The fund normally invests at least 95% of assets in the securities of its underlying index and in ADRs based on the securities in its underlying index. It uses a representative sampling strategy to try to track the index. The index consists of stocks traded primarily on the Bolsa de Valores de So Paulo. It is nondiversified."

I show this chart for two reasons. First is the right-angled and descending broadening formation, highlighted by the red lines.

Second is the partial decline. According to my book, Encyclopedia of Chart Patterns, 2nd Edition, pictured on the right, the breakout is upward 51% of the time. However, a partial decline boosts the likelihood of an upward breakout to 66% in a bear market. That is useful information, an edge that all of my books give traders, and that is what makes them so popular.

Whether or not this pattern will actually breakout upward is anyone's guess. Even if it does breakout upward, the move may not last long.

Let's assume an upward breakout. How far is price likely to climb? The measure rule answers that. I am just eyeballing the chart, so you will want to check my work, but the top of the pattern appears to be at 41 (highest high in the pattern) and 31 marks the lowest low.

The Encyclopedia book tells us the measure rule works 51% of the time in a bear market. Thus the height of the pattern is 10, so take 51% of that, or 5.10. Add the result to the breakout price, 41 (the highest high in the pattern) to get a target: 46.10. Another way to look at the full height measure rule is that 51% of the time, price will touch 51 (or 41+10, the breakout price plus the full pattern height). Price will hit the closer target somewhere above 90% of the time, assuming an upward breakout. That does not guarantee a hit, but it does give you an idea.

Knowing a target of 46.10 to 51 gives you the opportunity to look at the longer term chart for overhead resistance near those prices. If you see some, then that is likely where you will see price stall or even reverse.

-- Thomas Bulkowski

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