Bulkowski's PPG Industries (PPG) Trading Quiz

What chart patterns can you find? Look for the following (if you find others, great!): 3 three rising valleys, ascending broadening wedge, inverted and ascending scallop, symmetrical triangle.

The numbers 1, 2, and 3 mark the three valleys of the three rising valleys (3RV) chart pattern. There are others I didn't show. The symmetrical triangle on the far left is suspicious because of the white space in August. It looks to cut off a rounding turn although it's not very rounded...

Let's say you see the last 3RV on the right and decided to trade it. Price has closed above the top of the chart pattern (red line A), confirming the 3RV as a valid chart pattern.

Answer 1 (buy?): This chart shows a price channel where the 3RV is located. If price bounces off the top trendline and moves down, then buying would be a mistake. Perhaps it would be best to wait and see what price does. If it pushes through the top of the channel, then buy. Otherwise, wait. Also, a 2B pattern might form (a second peak slightly above the January peak, indicating a short-term reversal).

Answer 2 (target?): The measure rule for the 3RV is the height added to the breakout price. The height is the top (62.56) minus the bottom (56.20) for a height of 6.36. Add this to the pattern's high (it's also the breakout price) to get a target of 68.92. Price reaches the target just 57% of the time, so use caution. Consider multiplying the height by 57% and then adding it to the breakout price for a closer target.

Answer 3 (stop?): The closest minor low is valley 3 at a price of 58.89. That would be a decline of about 6.5% below the current close, which is reasonable. Volatility is $1.54 which is 1.5 times the average of the high-low range over the prior month (although testing shows that 2x volatility would be a better choice). That says to place a stop no closer than 60.90, so the minor low stop is fine (it's below 60.90). You could also go with the volatility stop for a closer stop loss.

Price pushed through the top channel wall and is now curling over and retracing the gain.

Question: Do you sell, buy more, or hold on?

(The Vs are how my program displays three rising valley patterns.

Answer (Buy?): The answer depends on the type of trader you are. Swing traders should have sold by now. Position traders would hold on. Why? Because price hasn't retraced far enough to become a sale. The chart shows the Fibonacci retrace percentages. If price were to drop below the 62% retrace line, then that would mean sell. If price touches it and bounces upward, then swing traders would buy, expecting price to reach the prior minor high at 68 (near point B).

As you can see, price formed peaks at Top 1 and Top 2 but the pattern didn't confirm as a double top (price failed to close below the low between the two peaks, shown as the horizontal line). A confirmed head-and-shoulders top appears. Price has closed below the right armpit, even though it didn't close below the blue neckline.

Question: Do you sell?

Answer (sell?): Short-term traders would sell. For longer-term traders, it depends on how far price is going to decline and how much money you want to lose on paper. The stock might stall at the twin peaks (line 1) or it might drop to 65 where it would find support at the valleys (line 2). Or it could continue down. If I owned this stock, I'd sell it. Why wait and take a larger loss? The head-and-shoulders top is a sell signal. Ignore it at your peril.