Looking For Tails
Some chart patterns
are easily recognized because of their unique, distinct shapes, such as a double
top and a 1-2-3 bottom. A double top warns of a bearish reversal, and a 1-2-3
bottom signals a bullish reversal. Needless to say, each chart pattern requires
more than one price bar. In a rare occasion, a stock can spend more than a few
weeks to form a double top. I don’t like to wait. I want to see my trading
result as quickly as possible. That’s why I like tails. All I need is one price
bar, and it tells me of an impending top or bottom.
The chart below is a daily chart of Brooks Automation (BRKS),
and it gives us two good examples of tails. A tail formed on March 19 was
signaling us of an impending bottom. The stock opened near the high, then sold
off, but managed to close the near the opening. The stock proceeded to advance
nearly 40% in four trading days.
A tail formed on April 30 indicated a bearish reversal. Brooks Automation opened
at the low, then staged a rally, but sold off at the end. As you can see, the
stock lost more than 10 points in four trading sessions.
Remember, tails have to appear near the level of
important highs or lows.
Till Tuesday,