Best examples of chart patterns for 2012

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Best Dressed List -- 2013

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Preview Each year at about this time we publish the “Best Dressed List,” showcasing the best examples of classical charting principles from the just-completed year. The Best Dressed List illustrates the types of trading situations that Factor LLC has sought over the years in its proprietary account. These types of trading situations are the main focus of Factor LLC’s trading. To qualify for the Best Dressed List, a market must meet the following criteria:

1. A clearly defined (no doubt about it) classical chart pattern at least 12 weeks in duration on the daily and weekly charts in a tradable market.

2. A decisive breakout with little or no pattern retesting. Secondary breakouts are considered when an initial earlier breakout failed.

3. A sustained trend to the implied target. Whether or not Factor LLC successfully captured the pattern is not a criteria for inclusion (at least not consciously). The list is broken down into two sections: The Best Dressed List and the Honorable Mention List. Best Dressed List

Market Pattern(s) Date completed Target(s) Topix 5+ month sym. triangle 11/19 at 762.5 847.0 on 12/20

Several patterns each year go down as classic “textbook” patterns. This symmetrical triangle is just such a pattern. Notice that the market broke out with a gap. In my opinion, this symmetrical triangle was far and away the best example of classical chart principles in 2012.

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Market Pattern(s) Date completed Target(s)

EURUSD 14-wk H&S top 5/9 at 1.2934 1.2522 on 5/24 I greatly prefer H&S patterns with a flat or horizontal neckline. This is an excellent example of a horizontal neckline.


Soybeans 19-wk H&S bottom 2/13 at 1253 1395 on 3/30 Notice the symmetrical triangle that formed as the right shoulder of the H&S pattern. I do not like down-slanting necklines on H&S bottoms. For me, the completion came when the market closed above the right shoulder high.

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Corn Dec. 9-month falling wedge 6/19 at 560 673 on 7/3

Market Pattern(s) Date completed Target(s) Nasdaq 12-mo. H&S

continuation 1/18 at 2420 2775 on 3/26

What I found most interesting was the New Year’s Day daily and weekly chart breakaway gap in January 2012. The gap has yet to be closed.

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Market Pattern(s) Date completed Target(s) Gold 3-mo. sym. triangle 8/21 at 1636 1750 on 9/13

The symmetrical triangle bottom formed right at a level of major support on the weekly graph.

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RBOB Gas 8-mo. sym. triangle 1/3 at 2.7535 3.1750 on 2/17 Often times a market will breakout and then simply drift sideways for a week or more. This can be a nerve-racking experience for a trader. As long as a breakout trade does not get too deep into your pocket it is wise to be patient while a trade works itself out.


Live Hogs May 8-mo. double top Secondary completion 4/13 at 90.15

83.05 on 5/1

The initial breakout failed, but the secondary completion resulted in a very strong trend.

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USDJPY 7-mo. double bottom 2/21 at 79.74 83.49 on 3/14 Sometimes chartists talk about “inside days” or “inside weeks.” In the case of the USDJPY, the market traded for 3-1/2 months in the wide range established on Oct. 31 by Bank of Japan manipulation. But when the mid-point high was penetrated the market wasted little time running to the target.

Market Pattern(s) Date completed Target(s) Gold / Swiss Franc

ratio 15-mo. sym. triangle 8/12 at 1359 1509 on 9/6

The chart of Gold, priced in Swiss Francs, has historically been quite reliable. This symmetrical triangle formed over 15 months, but the target was met in less than a month.

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Market Pattern(s) Date completed Target(s) Swiss Franc IMM 14-wk diamond 5/7 at 1.0867 1.0501 on 5/23

Diamonds are rare – and it is dangerous for a novice trader to even look for them. But true diamonds do occasionally appear.

Honorable Mention List


GBPUSD 11-wk sym. triangle 8/21 at 1.5782 1.6187 on 9/14 The Pound was an excellent charting market when I first became a trader. In recent years the market has been locked in a broad range. However, within this range there have been a few excellent patterns, such as the symmetrical triangle shown above.

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Platinum 9-wk. descending triangle 3-mo. wedge

4/11 at 1586 8/20 at 1494

1486.4 on 5/10 1594 on 9/7

Platinum manages to form one or two very clear patterns each year. The initial thrust out of the descending triangle was a one-day-out-of-line movement. As soon as the triangle was completed on a closing basis, a decline in earnest began. The 3-month wedge bottom had a very clean breakout.

Market Pattern(s) Date completed Target(s) Copper 3-month sym. triangle

(secondary completion) 5/3 at 3.7365 3.4670 on 5/16

As a general rule I will make two attempts at trading a major pattern, such as the symmetrical triangle presented above. The initial breakout in early April had some immediate follow through, but by the end of the month had re-entered the pattern and stopped me out. I will take the second attempt when the market either breaks out of the original boundary line on a closing basis or trades below the intraday low or high of the initial breakout thrust. The secondary breakout occurred on May 3.

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Market Pattern(s) Date completed Target(s) Copper 4-month compound

fulcrum 9/5 at 3.5180 3.8190 on 9/14

The compound fulcrum is a rare pattern, occurring only two or three times each year across all actively traded futures markets. The compound fulcrum can be a rather snarly pattern to trade because in the late stages prices tend to back-and-fill, meaning that trading the pattern with tight stops is quite difficult.

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Review

So, what is the point of the annual Best Dressed List? It depends! If you are a casual user of charts in your trading this document will be an interesting read, but not much more. And that is ok. Similarly, if you are a swing or scalp trader this document will have only passing interest. But, if you rely primarily on classical charting principles and if your goal is to catch the really big and significant chart patterns, this document needs to become your point of reference. A study of the Best Dressed List trading situations is a reminder that the most profitable major patterns have several things in common.

• There is no hurry to get aboard early. It is best to wait until the real move begins (although mature patterns often give an advance warning). An urge to preposition often ends in getting chopped up and then missing the real move when it comes

• Breakouts are decisive. While a process of retesting can occur, a well-timed entry is seldom put into a serious loss

• Even though a market can be oversold or overbought at the point of breakout, there is actually very little risk at entering at the breakout

• The moves to the targets are most often sudden and quick. Patterns that take months to develop can deliver their profits in a matter of days

• As a general rule it is best to exit at the target and then avoid any temptation to reenter the same market any time soon

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Email [email protected] ● www.PeterLBrandt.com

Factor LLC Best Dressed List 2012

Market Pattern Date

completed

Breakout

price

Target Date

target

met

Best Dressed

EURUSD 14-wk H&S top 5/9 1.2934 1.2533 5/24

Soybeans 19-wk H&S bottom 2/13 1253 1395 3/36

Corn 9-mo falling wedge 6/19 560 673 7/3

Nasdaq 12-mo continuation

H&S

1/18 2420 2775 3/26

Gold 3 mo sym triangle 8/21 1636 1750 9/13

RBOB Gas 8-mo falling wedge 1/3 2.7535 3.1750 2/17

Lean Hogs 8-mo double top –

secondary breakout

4/13 90.15 83.05 5/1

USDJPY 7-mo double bottom 2/21 79.74 81.4 3/14

Gold/CHF 15-mo sym triangle 8/12 1359 1509 9/6

Swiss Franc (IMM) 14-mo diamond 5/7 1.0867 1.0501 5/23

Topix 5+ mo sym triangle 11/19 762 847 12/20

Honorable Mention

Platinum 9-wk descending

triangle

4/11 1586 1486 5/10

Platinum 3-mo wedge 8/20 1494 1594 9/7

Copper 3-mo sym triangle –

secondary breakout

5/3 3.7365 3.4670 5/16

Copper

4-mo compound

fulcrum

9/5 3.5180 3.8190 9/14

GBPUSD 11-wk sym triangle 8/21 1.5782 1.6187 9/14

Documents

Best examples of chart patterns for 2012