Candlesticks, Fibonacci, and Chart Pattern Trading Tools : a synergistic Strategy to Enhance Profits and Reduce Risk

Figure 4.34
Eastman Kodak chart from 10–01 to 04–02. Head and shoulder
formation daily.
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3-POINT CHART PATTERNS FOR TREND REVERSALS
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distance of the price pattern from high to low leads to success rates of
83 percent for head and shoulder bottom formations and 63 percent
for head and shoulder top formations (according to Bulkowski). In our
experience, the peak or valley breakouts described here work best as
prof itable trailing stop exits.
Triple Tops and Triple Bottoms
Triple top and triple bottom formations are reliable 3-point chart pat-
terns. All three of the tops or bottoms need to be placed almost on a
horizontal line to show up as a valid triple top or triple bottom pat-
tern. The three bottoms are usually large and well separated from
each other.
A triple bottom chart formation for Nokia as of mid-2002 appears
in Figure 4.35.
Figure 4.35
Nokia chart from 05–02 to 09–02. Triple bottom formation daily. 
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APPLICATIONS OF TRADING STRATEGIES
In general, triple tops and triple bottoms are rare chart patterns.
Figure 4.36 shows another of these unusual but profitable formations—
an impressive triple bottom pattern on an IBM chart from mid-2002.
To enter the market, prices must break out of the highest high or
the lowest low over the time span of the development of the triple bot-
tom or top formation.
The stop-loss point is set to the highest high (for sell signals) or
the lowest low (for buy signals) of the chart formation.
The prof it target is def ined by doubling the distance between the
lowest low and the highest high of the chart formation. Using a simi-
lar prof it target rule, Bulkowski concludes that 73 percent of his pre-
calculated price targets are reached out of triple bottoms, whereas
only 47 percent of the targets are reached out of triple tops.
As soon as prof its start accumulating, a trailing stop rule can 
replace a prof it target rule. Again, the simple rule of using the most