Bulkowski on the Big W Chart Pattern

If you believe in Elliott wave, then look for an ABC correction. After price advances in 5 waves (higher in this case), you'll see price drop, retrace, and drop again as the red ABC lettering shows. After the ABC pattern ends, we see a Big W form. The belief is that you'll see price rise again in 5 or more waves. If that's true (I don't know if it is), then this setup is a high probability winner.

The green circle outlines the ABC pattern.

In the chart pattern world, an ABC correction is called a measured move down (MMD). In a MMD, price drops, retraces, and drops again. However, after the pattern completes, look for a return to the corrective phase.

Using letters, the measured move is ABCD. Leg CD is supposed to equal leg AB, but rarely does. The corrective phase is BC and it posed overhead resistance to an advance.

In this example, the stock reversed in the corrective phase, causing a loss.

Here's an example of an event pattern called a bad earnings surprise. After the announcement of earnings, the market doesn't like the results and the stock gaps downward. After a week to 10 days, you'll often see price bottom and start to rise. However, because earnings are so important, the stock may falter and reverse as in the case here, resulting in a losing trade.

In other words, check news on the stock. If it's not good, then pick another stock.

Sometimes a chart screams that a pattern is forming. In this case, the chart pattern is a head-and-shoulders top. I show the left shoulder and head. I drew a green line to signal where to enter the trade, but already the potential head-and-shoulders was visible. I'd avoid the trade because of the bearish head-and-shoulders top.

Indeed, a right shoulder formed and the stock returned to the level of the launch price.