[peterjerome]

Anatomy of a Trade:
The two charts attached will be helpful in understanding trading methodology.
PnF chart and standard bar chart.

Start with basket of 'fundamentally' sound equities, i.e. CANSLIM.
i use PnF charts to identify setups, then switch to standard bar charts to identify entry opportunities. PnF is superior for determining Supply & Demand relationships, and in identifying Support & Resistance levels. it's also extremely easy to determine reward / risk. if you are not already using R/R, your profits are most likely not consistent. intra-day traders typically use R/R ratio of "2" because the very short-term trade is either going with you or against you. a 50/50 proposition. inter-day traders(swing & position) should look for R/R of "3". using PnF it's easy to locate R/R of "5" or greater. it will help to learn some PnF basics. you do not, however, need to be an expert.

Strategy:
scan the basket daily after market close looking for "double-top with rising bottom" patterns. it's effective (80% profitability) and easy enough to identify manually. if your trading platform supports java script, you can take your scanning to the next level through use of .efs programs embedded into your PnF charts. i'm a position trader, but this technique also suits other interday (NOT intraday) traders.

The PnF chart shows the dbl-top pattern forming.
when the pattern is at the stage shown in chart, add stock to watch-list and monitor daily with standard bar chart. this will give an opportunity to get in at a more advantageous price.
the column of green Xs on the far right shows the dbl-top forming. this pattern is 2 boxes($2) away from the breakout. now is the time to switch to standard bar chart...see standard bar chart.

a simple method to calculate potential target price is shown on PnF chart.
calculating reward/risk is shown on standard bar chart.

Standard bar chart.
the first red arrow (2/17/11) identifies reversal up. at this point the dbl-top pattern is $2 away from the 'breakout'. 4 bars later, on 2/24/11, Low drops to 29.89. no reversal down happens as Low must drop to 29. at the 2nd red arrow, 3/3/11, entry occurs. all 5 entry requirements are met.
study and understand these entry requirements.

Entry requirements:
CCI makes trend line break(TLB), concurrent with the TLB, CCI also crosses above the zero line(ZL), AND crosses above the +100 line. crossing both the ZL and +100 level within a single bar is a very significant event in and of itself. executing a TLB in addition makes it highly significant.
additionally the entry bar is an UP bar(close > open), volume exceeds prior day volume, and swing low pivot occurs. swing low pivot is a 3 bar pattern consisting of a low (bar1), a lower low(bar2), and higher low(bar3).

the initial stop loss is set from the PnF chart @ 29. in PnF, this would be a reversal back down that makes a dbl-bottom breakout. a clear exit.
you can use a trailing stop as price continues up, or any other exit management you prefer. i.e. average true range(ATR), whatever... your choice.

going back to the PnF chart you can see our 'real' objective is to capitalize on the dbl-top breakout @ $34. if this breakout occurs we will be in at a very desirable price indeed. Note: the black-dashed line at top of standard bar chart is 52wk high @ 34.75. no doubt this will come into play later.

You can see the Reward/Risk calculation on chart. Use the target price obtained from PnF.

Have fun...post any question.
Peter.

[steve46]

When you indicate that a pattern is profitable and suggest a percentage, the obvious questions include
1. Over what period of time was your sample taken
2. How many data points did you include
3. Is your description of the pattern in your post exact.


Occasionally I like to replicate a person's research to see how accurate the claim is. I appreciate you providing the data. I like the idea and hope that I can confirm it..

and for those reading after this post, the "take-away" on this is as follows...as a professional I don't mind trading ideas that other originate...but...I do not simply throw money at a trade because someone suggests that it works....I always do my own research first for a couple of reasons

First, when you do your own testing, knowing the result gives you the confidence to take the trades. Based on an analysis of the distribution of data, a trader can be confident that he/she knows what to expect when they actually trade the pattern. They can be confident enough to take trades even when they have a streak of losers, and as importantly, working with the data, you get a feel for when/if the concept stops working...because the number of losers increases exponentially over time...you see what I mean.

[peterjerome]

[QUOTE=steve46;115047]When you indicate that a pattern is profitable and suggest a percentage, the obvious questions include
1. Over what period of time was your sample taken
2. How many data points did you include
3. Is your description of the pattern in your post exact.

Occasionally I like to replicate a person's research to see how accurate the claim is. I appreciate you providing the data. I like the idea and hope that I can confirm it..

steve,
the statistical information is from "Profit and Probability---Technical Analysis of the Price Fluctations of Common Stocks by Point and Figure Method", by Robert Earl Davis, Associate Professor of Chemistry, Purdue University,

i got the information from "Point & Figure Charting", "The Essential Application for Forecasting and Trading Market Prices", by Thomas J. Dorsey.

As to the Double-Top pattern, it is one of many patterns. Based on the above reference, the Double Top is profitable 80. 3%. The average gain is 38.7% over an 11.5 month period. Additionally the stats are assuming a Bull Market.

not sure what you mean in #3 above...is the description exact? the PnF chart i supplied shows a 'typical' Double Top. all double tops will not be 'exactly' the same, but the 'concept' is the same. Thomas Dorsey additionally points out "...as you can see there is a variation in these formations...different traders may find one item more important than another..."

you can always embrace the concept and 'paper trade'. that way you can determine if the methodology works for you and not risk any dollars. my experience is that the trader, NOT the methodology, is the ultimate 'statistical test'. as for myself, my income comes from trading. my results are now steady, 5.5% monthly returns...equity curve up and to the right...a beautiful thing.

i am where i am now after years of trying every trading system on the horizon...and failing. Pogo put it best, "We have met the enemy, and he is us".
good luck,
peter.

[MightyMouse]

Originally Posted by peterjerome »

Anatomy of a Trade:
The two charts attached will be helpful in understanding trading methodology.
PnF chart and standard bar chart.

Start with basket of 'fundamentally' sound equities, i.e. CANSLIM.
i use PnF charts to identify setups, then switch to standard bar charts to identify entry opportunities. PnF is superior for determining Supply & Demand relationships, and in identifying Support & Resistance levels. it's also extremely easy to determine reward / risk. if you are not already using R/R, your profits are most likely not consistent. intra-day traders typically use R/R ratio of "2" because the very short-term trade is either going with you or against you. a 50/50 proposition. inter-day traders(swing & position) should look for R/R of "3". using PnF it's easy to locate R/R of "5" or greater. it will help to learn some PnF basics. you do not, however, need to be an expert.

Strategy:
scan the basket daily after market close looking for "double-top with rising bottom" patterns. it's effective (80% profitability) and easy enough to identify manually. if your trading platform supports java script, you can take your scanning to the next level through use of .efs programs embedded into your PnF charts. i'm a position trader, but this technique also suits other interday (NOT intraday) traders.

The PnF chart shows the dbl-top pattern forming.
when the pattern is at the stage shown in chart, add stock to watch-list and monitor daily with standard bar chart. this will give an opportunity to get in at a more advantageous price.
the column of green Xs on the far right shows the dbl-top forming. this pattern is 2 boxes($2) away from the breakout. now is the time to switch to standard bar chart...see standard bar chart.

a simple method to calculate potential target price is shown on PnF chart.
calculating reward/risk is shown on standard bar chart.

Standard bar chart.
the first red arrow (2/17/11) identifies reversal up. at this point the dbl-top pattern is $2 away from the 'breakout'. 4 bars later, on 2/24/11, Low drops to 29.89. no reversal down happens as Low must drop to 29. at the 2nd red arrow, 3/3/11, entry occurs. all 5 entry requirements are met.
study and understand these entry requirements.

Entry requirements:
CCI makes trend line break(TLB), concurrent with the TLB, CCI also crosses above the zero line(ZL), AND crosses above the +100 line. crossing both the ZL and +100 level within a single bar is a very significant event in and of itself. executing a TLB in addition makes it highly significant.
additionally the entry bar is an UP bar(close > open), volume exceeds prior day volume, and swing low pivot occurs. swing low pivot is a 3 bar pattern consisting of a low (bar1), a lower low(bar2), and higher low(bar3).

the initial stop loss is set from the PnF chart @ 29. in PnF, this would be a reversal back down that makes a dbl-bottom breakout. a clear exit.
you can use a trailing stop as price continues up, or any other exit management you prefer. i.e. average true range(ATR), whatever... your choice.

going back to the PnF chart you can see our 'real' objective is to capitalize on the dbl-top breakout @ $34. if this breakout occurs we will be in at a very desirable price indeed. Note: the black-dashed line at top of standard bar chart is 52wk high @ 34.75. no doubt this will come into play later.

You can see the Reward/Risk calculation on chart. Use the target price obtained from PnF.

Have fun...post any question.
Peter.

Canslim is very effective. I used it and also used Vectorvest when i traded stocks longer term.

The brilliance of your system is that you are buying stocks in an uptrend or bull market. In a bull market, the bull charges through even the best topping chart patterns. It pays to be long and stay long.

You need a good read on the overall market to know when the bull market will begin to range and then if it will break out higher and resume the bull run or break out lower begin a down trend.

So, are you going to trade long only? If so, does your system keep you out of the market completely in spite of a stock being an excellent Canslim candidate? I apologize of you have already answered these above.

[peterjerome]

Originally Posted by MightyMouse »

Canslim is very effective. I used it and also used Vectorvest when i traded stocks longer term.

The brilliance of your system is that you are buying stocks in an uptrend or bull market. In a bull market, the bull charges through even the best topping chart patterns. It pays to be long and stay long.

So, are you going to trade long only? If so, does your system keep you out of the market completely in spite of a stock being an excellent Canslim candidate? I apologize of you have already answered these above.

mighty,
good questions.
yes, i am a Long only player. i find it easier to stay in the mindset of a buyer all the time. i'm in the trade until the primary trend changes. however, you have to be able to 'ride' through the 'normal' volatility in trend. if the normal peak to valley movement is 8-10%, so be it. you have to be able to detect when the stock is 'range bound' and sit tight. at the end of range period, uptrend may resume.

the primary trend change involves a lower high, a lower low, then a break below that last lower low. knowing where support/resistance levels occur is key. PnF can help here.

on your question of preventing long entry into weak market, i use other techniques to judge market direction. again, PnF is very useful in locating supply / demand relationships on market indicies. i look for a PnF pattern known as 'bullish reversal'.

hope this is helpful.
good trading to you mighty,
peter.

[MightyMouse]

Originally Posted by peterjerome »

mighty,
good questions.
yes, i am a Long only player. i find it easier to stay in the mindset of a buyer all the time. i'm in the trade until the primary trend changes. however, you have to be able to 'ride' through the 'normal' volatility in trend. if the normal peak to valley movement is 8-10%, so be it. you have to be able to detect when the stock is 'range bound' and sit tight. at the end of range period, uptrend may resume.

the primary trend change involves a lower high, a lower low, then a break below that last lower low. knowing where support/resistance levels occur is key. PnF can help here.

on your question of preventing long entry into weak market, i use other techniques to judge market direction. again, PnF is very useful in locating supply / demand relationships on market indicies. i look for a PnF pattern known as 'bullish reversal'.

hope this is helpful.
good trading to you mighty,
peter.

I use raw reversal bar form of PnF. I rely on them heavily in my trading.

It's a shame you don't plan on shorting. Canslim or VV can be used to select a basket of weak overpriced stocks in a weak market. Stocks tend to go down faster than the go up.

MM

[peterjerome]

Originally Posted by MightyMouse »

I use raw reversal bar form of PnF. I rely on them heavily in my trading.

It's a shame you don't plan on shorting. Canslim or VV can be used to select a basket of weak overpriced stocks in a weak market. Stocks tend to go down faster than the go up.

MM

Mighty,
PnF reversal is factored into my exit strategy, however it's not "raw".
support / resistance levels are typically 'tested'.
consider the bar chart below on ANDE, one of my current positions.
12/01/10 entry @ 33.30
12/07/10 price makes new High @ 38
12/14 10 PnF reversal @35, Low 'tests' exit @ 34.81, volume down -40%, supply weak.
'typical test'
12/15/10 next bar Low @ 35.02, barely above exit, volume stronger (shows demand)
12/16/10 price opens above exit and closes below. volume down -15%, supply weak.
12/17/10 bar close up 1% with volume up 130% demand strong.
remaining bars all make higher lows. demand trending up
SO when the price drops below exit, supply is weak and when price moves above exit, demand is strong. so i sit tight.and enjoy the ride.

on the shorting thing...i used to short and would occasionally find myself on both sides of the market, Long & Short at same time. i found this awkward. like cheering for both sides of the market. i have to be EITHER a buyer OR seller and i'm not about to pass up a profitable Long opportunity just so i can short. trust me mighty, i'm not missing out.
don't cry for me agentina.

thanks for posting,
good trading,
peter.

[peterjerome]

Mighty,
here's a little clarification on my shorting strategy we discussed.
i will definitely Short in a Bear mkt. like 1987...be crazy not to. how to determine Bear Mkt?
the absolute best indicator for determining mkt direction is the NYSE Bullish Percent Indicator. it's based on PnF charts. to use it effectively, you must really understand how it works. if you are not already aquainted with this indicator, i would highly recommend due dilligence research on this indicator. you won't regret it. see chart on stockcharts.COM. Symbol = $BPNYA. change the box size to "3". stockcharts sets the default at "2".

hope this clarifies my strategy.
good trading,
peter.