Best Chart Patterns and Trading the First Pullback

Written on 01-09-2006 6:10 am by Craig

Trading in September

September wins the prestigious award for being the "Worst Month Of The Year", according to the The Almanac Investor.

"Though the month has opened strong eight of the last 10 years, once the summer tans begin to fade and the kids head back to school, fund managers tend to clean house as the end of the third quarter approaches, causing some nasty sell offs near month-end over the years."

"We steer clear of the long side until the institutions settle up their accounts."

Chart Of The Day agrees.

There are some bullish tendencies though. The few days before the Labor Day holiday weekend and the two days after are usually bullish for the stock market.

Here is what happened last September:

stock chart

I know all of this sounds pretty negative, BUT trading in September doesn't always happen like this. There is the possibility of the market trading against history.

We'll see.

Written on 04-09-2006 10:30 pm by Craig

The Top 10 Best Chart Patterns

Here are the top 10 best performing chart patterns ranked according to their overall performance. These chart patterns are bottom patterns (long side).

  1. Hight, Tight Flag
  2. Pipe Bottoms
  3. Inverted and Ascending Scallops
  4. Three Rising Valleys
  5. Rounding Bottoms (tied with 6)
  6. Descending Triangles
  7. Ascending Broadening Wedges (tied with 8)
  8. Eve & Eve Double Bottoms
  9. Triple Bottoms (tied with 10)
  10. Head and Shoulders Bottoms

Source: Getting Started In Chart Patterns by Thomas Bulkowski

Written on 06-09-2006 7:19 am by Craig

Wolfe Wave Revisited

A while back I posted a blog entry titled, "Nasdaq, Wolfe Wave?". Here is the original chart:

wolfe wave chart

Here is where we are at now:

chart 2 wolfe wave

Like I said before, "I am not a Wolfe Wave expert". And, it would be hard to tell if the pattern is really useful. It's interesting how the EPA lines up perfectly with a major resistance line.

Will the Nasdaq get that high? It's hard to imagine that the Nasdaq will rally that high.

But, that's what I thought when I posted the first chart!

More on the wolfe wave here.

Written on 10-09-2006 10:43 am by Craig

What The Pro's Don't Want You To Know

Judging from my email, it is apparent that I have not explained a very important concept very well - one that professional traders DO NOT want you to know about.

Here it is:

  • You want to be buying stocks on down days in the market - not selling!
  • You want to be selling stocks on up days in the market - not buying!

I get emails that go something like this:

"Craig, I just bought XYZ stock. Is this a good trade?"

First of all, I can't predict the future, so I have no idea if it will be a good trade. Second, the stock was bought on a major up day in the market. So, when the market pulls back, it will likely pull the stock with it and this person will get stopped out!

Now, I realize that buying on down days can be psychologically hard to do. After all, those in the media are saying things like this:

"The market sold off hard today as investors are worried about 'X'."

"The Dow is down 100 points today on 'X' concerns."

With all this negativity, it is no wonder why you could be worried! But, you have to learn to ignore the media.

"But what if I buy a stock on a down day and the market continues to sell off?". Good question, but you could also say the following: "What if I buy on an up day and then the market sells off"!

At least in the first scenario, you got in after a wave a selling has already taken place. That is certainly a lot better than getting in before a wave of selling has taken place!

So...

Wait for a down day in the market. Now run your scans. Look for stocks that are up. Or, if the market is trading at the bottom of it's intraday range, look for stocks that are trading at the top of it's intraday range.

You are looking for stocks that have relative strength - stocks that are stronger than the market. Many times, these stocks will just trade sideways until the overall market reverses.

Then you will be sitting pretty. You will have already established a position. Now you can just watch all the novice traders move the stock in your direction.

You NEED these traders to buy after you buy. You NEED these traders to sell after you short.

That is the only way to make money trading stocks.

Written on 17-09-2006 5:25 pm by Craig

Stock Blogs 9-17-2006

Here are some interesting posts from bloggers around the net:

Trader X has a great post on "chasing success". Read this before you decide to change your trading strategy.

"I talk to numerous people through email every week who are struggling to be successful at trading. And, I find two common traits in most of them:

  • They trade too much - most of the people struggling make multiple trades daily, some as many as 10+ round trips.
  • They have a lack of focus.

I will start with #2. I have discussed this in the past - most people jump from indicator to indicator, timeframe to timeframe, method to method." Read more

I was going to do a "market review" post today, but then I saw Chris's post and decided that I really couldn't do it any better! Check it out here.

Whoa! Stick it up your R's

Michael talks about Al Gore and global warming.

Have a great week!

Written on 21-09-2006 11:35 pm by Craig

Trading Videos

I haven't been very active on the blog lately, because I've been working on getting some video's up and running on this website.

The first video is complete:

Trading Video's

I'm sure there will be some bugs to work out, so I would really appreciate any comments, suggestions, etc.

Also, if you have problems viewing or hearing the video, please let me know.

Enjoy!

Written on 25-09-2006 8:09 pm by Craig

You Might Be A Confused Trader If...

I see stock charts like this on forums, blogs, and web sites.

These cluttered charts (like the one below) have been known to cause frequent migraines, dizzy spells, and sudden loss of trading capital in laboratory tests.

Warning!

The image below may cause your brain to explode...

messy stock chart

Do your stock charts look like this?

How can you tell what is going on with the stock? Which technical indicator do you believe? How can you make any kind of a decision?

Break free. Get rid of all that junk!

Written on 27-09-2006 11:50 pm by Craig

The One Chart Pattern That You Must Trade

No, it's not a cup and handle pattern. It's not a triangle. And it's not a head and shoulders pattern.

It's a First Pullback.

What's a first pullback?

This is just the first pullback after a significant price event. For example:

  • The first pullback after a trend line break.
  • The first pullback after a breakout.
  • The first pullback after break down (short).
  • The first pullback after a "kicker" candlestick pattern.
  • The first pullback after a break to new highs.

(I think you get the idea!)

Here is an example...

first pullback scenario

You can see the nice breakout on above average volume on this chart of NVEC. After the breakout, the whole perception of this stock changed from "I don't really care about this stock." to "HOLY MOLY!!!"

This stock moved decisively out of a stage one to a stage two uptrend. Then it made a nice pullback into the TAZ and went on to double in price in just a couple of months.

When your run your scans looking for setups, try to identify those "first pullback" scenarios. You want to trade those over all others, because those carry the greatest potential profits.

This is the one pattern that I am hoping to find the most - that perfect first pullback scenario that swing traders (and day traders) have come to know and love!

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