THE STOCK TELL YOU THAT IT HAS MADE A BOTTOM OR A TOP BY SACRIFICING A POINT OR SO FOR INSURANCE.
The Most Bullish Looking Chart Patterns
All your buying for maximum profits should be concentrated on stocks having the following types of chart patterns:
1. Long-term decline followed by a breakout ………………………………….DBA is making this chart
2. Flat base breakout
3. Coming off a double bottom
4. W Pattern
6. Cyclical at historic lows
Let us examine each of these separately:
1. Long-term decline followed by a breakout
This pattern is mentioned first because it is capable of producing the greatest capital gains. The pattern is exactly as described, a long-term decline (the longer the better) followed by an eventual bullish reversal above a previous declining peak. The stock gains an upside impetus commensurate with the duration and extent o f the previous decline. The theory here is that the stock has been so utterly oversold that upon the first evidence of a turn for the better the stock will advance at a greater rate than it previously declined. Let me add-MORE GAINS OF 10070 AND BETTER OVER A SHORT PERIOD OF TIME HAVE SPRUNG FROM THIS TYPE OF CHART FORMATION THAN FROM ANY OTHER. (A successful parlay of ten such gains can turn $1,000 into $250,000.)
2. Flat Base Breakout
The longer the price of a stock remains in a very restricted range of fluctuation the greater is the potential rise upon a breakout above that price range. If the line of accumulation is at the bottom of a previous long-term decline so much the better. A stock coming off a 10-year base is potentially ten times more bullish than a stock coming off a 1-year base. The base or plateau may be at a more advanced level but the same principle holds, a move above that restricted price line is quite bullish. The more advanced the plateau is the less bullish it is, the lower the base line the more bullish. Suppose a stock was once priced
THE GRAND STRATEGY OF STOCK TRADING 217
at $40 and then went into a severe long-term decline down to $5. Suppose it then fluctuated between $5 and $10 for ten years and then suddenly one day managed to close at $11. The stock would be screaming to be bought, having evidenced a degree of strength unseen in a decade. That would constitute a classic flat base breakout and the chances of catching a 1000/" gain or better over the near-term by buying at $11 a share would be excellent.
3. Coming off a double bottom
When a stock has met support (demand) at a given level following a decline the stock must prove itself that it can hold at that level should the stock tem-porarily rise and then fall back again. If it is met by buying at the same bottom level then the stock is in a much better position to make a more sustained ad-vance. The astute trader buys the stock after the double bottom has been recorded and the stock has begun to rise.
There are two observations to keep in mind regarding double bottoms:
(a) The lower the bottom the more bullish it is.
(b) The farther apart the bottoms are the more bullish it is.
4. W Pattern
By the very shape of the letter we can see that the double bottom formation traces out a letter W. The middle leg of the W represents a temporary level of supply (upside resistance) and when the right leg of the W exceeds the middle leg it constitutes a very important buy spot.
The growth pattern is characterized by a long continuing advance in the price of the stock with a tendency toward acceleration on the upside in the latter stages of its growth pattern. The astute trader who is only aiming at maximum profits is only going to pay attention to this type of pattern during the later stages of upside acceleration.
6. Cyclical at Historic Lows
This pattern is listed last because it contains the greatest degree of risk, a risk that can only be minimized by an expert judgment of timing factors. If the timing is right, the gains can be very great.
For best results the six key patterns must be geared to the market
Newton would have been fascinated with the stock market as it exists today because he undoubtedly would have enjoyed watching his famous Law of Gravity at work on security prices.
(Source: A Strategy of Daily Stock Market Timing for Maximum profit, by Joseph E. Granville)