Bulkowski's Southern Union (SUG) Trading Quiz

What chart patterns can you find? Look for the following (if you find others, great!): Descending scallop, inverted and ascending scallop, 2 right-angled and ascending broadening formations.

Here's the chart of found patterns.

Instead of discussing a hypothetical trade, a trader asked me about identifying a partial rise or decline as being a tradeable signal. Let's take a closer look at the Jan-Feb pattern above.

This is a zoom in on the prior slide. The swing low begins at A and rises to B in a straight-line run then retraces to C. Is C a valid partial decline? First, the chart pattern should be fully established, and it is although I'm not crazy about this one because of the lack of trendline touches, but I digress. The partial decline should appear after the last touch and before an upward breakout, like that shown here. So, yes, it's a valid partial decline and it correctly predicts an upward breakout from a right-angled and ascending broadening pattern 80% of the time.

I show 3 Fibonacci retrace lines in green. I like to see price touch the 62% line before moving up and I'll usually buy once it clears the highest high in the pattern (B).

In this example, price touches the 50% retrace line before rebounding and it looks like a well-behaved partial decline. If you are an aggressive trader, once you think price has turned at one of the Fib retrace values, then go long. Price might pause at the old high (B), so consider selling all or part of your position there. Price breaks out upward 55% of the time from this type of pattern (if you ignore the partial decline).

Price never climbed above B, shown as the red line, before tumbling. Thus, the partial decline ended in a failed buy signal because price continued moving lower instead of posting an immediate upward breakout. Fake breakouts are one reason I don't like trading broadening patterns – they just don't perform that well. Price eventually recovered to post a new high.