Bulkowski's Alaska Air (3) Trading Quiz

What chart patterns can you find? Look for the following: Big W, double top, double bottom, head-and-shoulders top, symmetrical triangle, descending scallop, plus one ascending and inverted scallop.

AADT is an Adam & Adam double top. The big W spans the Eve & Eve double bottom and ends at the head of the Head-and-shoulders top. The symmetrical triangle shows an upward breakout.

Answer 1: Buy because of the upward breakout.

Answer 2: Measure the height of the triangle and add it to the breakout price. The result is the target and price reaches or exceeds the target 66% of the time, so consider multiplying the height by 66% and then adding it to the breakout price. The breakout price is the price at which the stock pierces one of the triangle trendlines.

Answer 3: The bottom of the triangle is usually a good stop location and that also agrees with a volatility stop location. Here's the details as of the day before the breakout: Volatility stop: $27.20 -8.4%. 2x volatility: $1.71 Minor low stop: 28.22 -5.0% on 03/21/2005.

If you bought the stock, you'd have taken a loss. If you still held on as it declined, that would be a mistake. The day after the prior chart, price peaked at 31.40 and dropped to a low of 25.55, for a potential loss of 19%. Price did recover, but you should not have ridden out the decline. Overhead resistance at line A formed a solid wall accompanied by high volume, a potent resistance level.