IBD Patterns and Alternative Entries Dennis W. Wilborn, Sr. ActiveTrendTrading.com dww@activetrendtrading.com Breakouts or Bounces both Good, but which is Best?
Disclaimer U.S. Government Required Disclaimer Commodity Futures Trading Commission Futures and Options trading has large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the futures and options markets. Don t trade with money you can t afford to lose. This is neither a solicitation nor an offer to Buy/Sell futures or options. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed in this training. The past performance of any trading system or methodology is not necessarily indicative of future results. CFTC RULE 4.41 HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN. All Materials presented are for training purposes only. Traders should paper trade any new method prior to risk of personal capital. Material is Copyright of Active Trend Trading 2007-2015
Fact or Fiction? Breakout or Rebound Entries Breakout Entries are Less Risky than Bounce Entries (alternative entries)! or The few extra percentage points of gain aren t worth the risk! Which system offers the best performance from the prospective of: 1. Win/Loss Percentage 2. Risk/Reward 3. Objective Entry Our study provides some insights that may be surprising! All studies used either the SPY ETF or IBD quality growth Stocks
Breakout Entries 1. Win/Loss Ratio = 2/3 according to an IBD reference which is 66.66% 2. Risk/Reward = 7%-8% 3. Objective Entry = 0.10 above pattern high 4. Breakout to new highs NO Overhead Resistance This proven trading system is excellent and has withstood the test of time! But is it less risky and better?
Bounce (Additional) Entries 1. Win/Loss Ratio = historically 60-70% 2. Risk/Reward = 3%-5% (Results -3.46% over 7 years) 3. Objective Entry = 10-25 bounce off of a support level 4. Overhead Resistance yes, but often 10-40% away Seems that a Trend Trading System based on Bounce Entries is similar and at least equally attractive as a Breakout system. It also has a profitable history as identified in the work of Edwards & Magee pre-1950 in their classic book Technical Analysis of Stock Trends But is knowing how to use Bounce Entries worth it?
Alternative Entry Data 10 Years Trading SPY Long Averages per Trade : 167 Trades Profit/Loss : 2.76 Average Loss: - 1% Average Profit: + 2.76%
Alternative Entry 1 st Stock on the IBD 50 Start of the Year Averages per Trade : 79 Trades Profit/Loss : 4.0 Average Loss: - 3.46% Average Profit: +13.97%
Example: BITA Breakout Entry : 45.45 1. BITA setting up in a Cup & Handle C&H Entry = 45.45 2. Alternative: 8 day EMA bounce Entry = 37.96 (.25 above moving average) Bounce Entry : 37.96 Potential run to the all time high = 23% from bounce entry.
Example: BITA what Happened Next? Breakout Entry : 45.45 Price action continued to fall, and would have stopped out at 40.75 for a gain of 7.3%, but a second chance presented itself: 1. 2 nd Bounce Entry : 41.39 2. Breakout Entry : 45.45 2 nd Bounce Entry : 41.39 Potential run to breakout = 9.8% from bounce entry. Current Profit as of 6-26-14 Bounce Entry = 11.28% Breakout Entry = 1.36% Note: Even with a 7-8% drop from the Breakout Entry, the Bounce Entry would still be profitable.
Example: AMBA TSLA shaping the right side of a cup after a correction: Breakout Entry : 35.48 1. Bounce Entry : 26.70 2. Breakout Entry : 35.48 Potential run to breakout = 32.8% from bounce entry. Current Profit as of 6-26-14 Bounce Entry : 41.39 Bounce Entry = 16.4% Breakout Entry = 0 %
Example: TSLA Breakout Entry : 265.10 TSLA shaping the right side of a cup after a correction: 1. Bounce Entry : 210.00 2. Breakout Entry : 265.10 Potential run to breakout = 26.2% from bounce entry. Current Profit as of 6-26-14 Bounce Entry : 210.00 6/16/14 Bounce Entry = 12.2% Breakout Entry = 0 %
Breakout or Rebound Entries Fact or Fiction? Breakout Entries are Less Risky than Bounce Entries (alternative entries)! or The few extra percentage points of gain aren t worth the risk! Which offers the best entry from the prospective of: 1. Win/Loss Ratio : Equivalent 2. Risk/Reward : Edge to Bounce Entries 3. Objective Entry : Equivalent 4. Worth the Potential Gain? Conclusion: Both Systems are time tested and proven profitable systems. Knowing how to Trend Trade may open additional opportunities for profitable trades while waiting for breakouts that may or may not actually happen. One might want to approach the decision of which to trade not from an either-or perspective but from a view point of knowing both.
IBD PATTERNS Determine on Weekly Charts
C & H MOST POPULAR PATTERN 12-33%+ 12-
C & H MOST POPULAR PATTERN
C & H MOST POPULAR PATTERN ATTS Entry 14% to Right side of Cup
IBD DOUBLE BOTTOM
IBD DOUBLE BOTTOM ATTS Entry 14% to Right side of Cup
TRADITIONAL DOUBLE BOTTOM Approximately Equal Lows & 20% to Peak
FLAT BASE
FLAT BASE ATTS Entry 7% to Breakout
HANDLES (FLAGS)
Handles (Flags) ATTS Entry 10% to Breakout
TIGHT CLOSES 3 OR MORE Typically An Add On Point
TIGHT CLOSES 3 OR MORE ATTS Wait for Pullback
SQUARE BOX
SQUARE BOX
50 DAY OR 10 WEEK PULL BACK
50 DAY OR 8 WEEK PULL BACK Patience Game! 128% gain from breakout to first close below the 50 day SMA 1 2
ASCENDING BASE
ASCENDING BASE
ASCENDING BASE
SAUCER BASE Rare
SAUCER BASE Rare
HIGH TIGHT FLAG Rare
HIGH TIGHT FLAG Rare
SHORT STROKE (LIKE DOJI SANDWICH ON A WEEKLY CHART) Rare
SHORT STROKE Rare
SUMMARY It s all about patterns regardless which system one trades Fight the urge to see what s not there Focus on the most plentiful patterns Focus on fewer stocks!
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PROFILING STOCKS FOR FUN & PROFIT Profiling Stock defines characteristics of winning and losing trades Tendencies of Successful Patterns Establish Expectations Copyright 2014--Active Trend Trading Provides the warning when price action is not acting in accordance with a success profile!
PROFILING STOCKS FOR FUN & PROFIT Could you trade this chart? Why
PROFILING STOCKS FOR FUN & PROFIT Could you trade this chart? Why
PROFILING STOCKS FOR FUN & PROFIT This is the Mirror Image of the Chart on the Left What s the Take Away?
PROFILING STOCKS FOR FUN & PROFIT What s the Take Away? 1. Our belief will shape what our eyes see 2. Sometimes we don t see what we really see 3. Too Learn how to trade to the downside apply the mirror image of the same rules! Let s take a look at the popular IBD Patterns Are they easy to see? What can we do to improve what we re seeing? Are there other things to focus on that might be easier to see?
Good Day Traders Trade Wisely & Profitably! dww@activetrendtrading.com PH: 808-366-0397 Get our Free Newsletter at: www.activetrendtrading.com
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