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The best intraday solution is to enter a trade when a stock goej green, at which point the long entr is triggered. The risk/reward ratio ofthis trade is good because the stop can be placed at the low ofthe d, and than the position can be held until the end ofthe d. Ifthe stock closes up on the day or even near the high, then the trader has effectivaly anticipated the double bottom, and the nightly scans wiU reccgnize the double bottom with a bar that closed strongly on the d. In tum, other traders wiU take long positions on the following day when the high is exceeded.

Figure 5.6 is an example of a single double bottom (one line). In the next few examples, we show how consecutive instances ofthe same pattem (multiple lines) alert the trader to impending moves. Further, we apply the concept ofan ATR factor to construct bottom and top formations where the pivot points are not perfectly connected.

5.5 Double Top

The chart in Figure 5.7 shows a Double Top formation of three parallel lines with the same origin. Notice how two ofthe lines do not touch the exact high of the origin ofthe double top because we use the same principle that has been ap-phed throughout the book: a range fector or a percentage of the ATR. For aU bottoms and tops, the Acme software uses a RangeFactor of 0.3, or ofthe ATR. Thus, if a high is within the tolerance of a previous high, than the formation qualifies as a double top.


For example, suppose the current high rs 21.5 and the high ofthe previous high pi\-ot bar is 21.25. a difference of 0.25 pomts. Ifthe ATR ofthe stock is 0.9, then the eUowable difference is 0.3 x 0.9 = 0.27 points. Consequently, this high qualifies as a double top

At this point, the concept of multiplicity cannot be emphasized enough. The first double top in Figure 5." is an NR bar. The second double top is a bearish Cobra, signified by the close at the low of the d. At this point, the trader may not even wait forthe short trier with two consecutive double tops. Finally, the third double top is a Hook that breaks the low ofthe previous day. This serves as another confirmation for a short entr. The EasjLanguage code for detecting a Double Top is shown in Example 5.4.

Example 5.4. Function AaneDoubleTop


LookbackBars(Numeric), Strength(Numeric), RangeFactor(Nunieric);


RangeDelta(O.O), HighPivot(O.O), LowPivot(O.O), HigJiMiniinum(7);

AcmeDoubleTop = -l;

RangeDelta = RangeFactor * Volatility(LookbackBars);

HigJiPivot = PivotHighVSBar(i, High, Strength, Strength, LookbackBars);

LowPivot = PivotLowVSBar(l, Low, Strength, Strength, LookbackBars);

If HighPivot <> -1 and LowPivot <> -1 and HighPivot >= HighMinimum and

AbsValue(High - High[HighPivot]) <= RangeDelta and AbsValue(Higti - Highest(High, HighPivot)) <= RangeDelta and HighPivot > LowPivot Then AcmeDoubleTop = HighPivot;

The code for finding bottoms and tops is based on the concept ofa/irvo/bar, also known as a avingbar. Each pivot bar has a characteristic known as strength, a. reference to the number of bars on either side of the bar. For a high pivot, the strength refers to the number ofbars on either side that are lower than the pivot price. For a low pivot, the strength refers In the number of bars that are higher than the pvot price. Fnrther, each pivot can have a separate left strength and

5Geometnc Trading

right streih. If ahighpivot bar has aleft strengfh offhree and a right strength oftwo, then the three highs to the left and the two highs to the right are lower than the jAwt bar high. Tjpicehy, the left strengfh is equsl to the right strength for sjmmetry. The default strengfh for the Acme indicators is four.

TheAcmeDoubleTop fiinction has a chart window to look for high and low pivots, scopedby ike parameter LookbackBars. It first locates ahigh pivot and a low pivot. If 1 1 are found, then the function goes on to test other conditions to qualifj the pattem as a double top. First, the origin ofthe double top must be at least seven bars away (this parameter can be austed). Second, the difference between the high ofthe current bar and the high ofthe origin ofthe top must be less than a certain percentage ofthe ATR; by definition, either of these values must be the highest high ofthe range. Finahy. the high pivot must be greater than the low pivot.

5.6 Triple Bottom

The difference between the double bottom and triple bottom is that the former is drawn across two pivots and the latter across three pivots. Figure 5.8 is an example of a double trile bottom. Note the difference between an intraday entry on the second triple bottom and an entry the fohowing day. The stock closed near 39 on the day ofthe second triple bottom, nearly three points aboe the low of 36, making a second day entry alow-probabihty trade. On that second day, the stock gapped open at 39, tested 40, and closed at the low ofthe day near 38.

HlilASTally OSą7/2001 Aane Triple Battoni(40,3,Q.3,54


1-43.000 h42.000 1-41 0 -40.0D0 -3V.DO0 3V.DO0 37 0



IlKiiir . . Iii,.-t..ii..i

5 7 Triple Top 119

5.7 Triple Top

The Triple Top has cachet. A stock attempts to break out for the third time, and eh of the bulls get lathered up about its big breakout potential. As with any other simple pattem, its success rate is not as high as one might be led to beheve. Ifthe pattem were that easy to trade, than there would be a Web site named, and trader would flock to it.

In Figure 5.9, notice how many times in early June the index tried to bresk abo\e the triple top-once, then three bars later twice, the next bar, and the next bar. A buy stop atickaboe the high would have been stopped out twice, whUe an ATR factorwould have prevented both trades.

SDOT LAST-Daily 7/1 /2000 Acme Triple Top(40,3,D.3,S0)


ngiire5.9. Triple Top

5.8 Triangle

A rrioHg/e IS a consohdationpattemwith a narrowing range. A trendline sloping down connects the highs, and a trend line sloping up connects the lows. As with other geometric patterns, we devised a new way of looking at a triangle with mukiplicity. The formation is called a Stealth because of its resemblance tofheB-2Spirit,amulti role bomber.

< ll)<-Si.-.lil.1{.,ii Ihni, wiiifi.ili .1

ll.< 1.1.1)1 U..S,

Figure 5.10 shows an example of a siealtti triangle. Fiist, the most recent pairs of pivot highs and pivot lows are located based on a miirimum Strength within a range specifiedbyieHg/ . Then, animaginaitrendhne is projected across each pair of pivots to the current bar. Ifthe high ofthe current bar is less than the value ofthe projected trend line for the high pivot pair, then the first condition for a triangle pattem is satisfied. Similarly, ifthe low ofthe current bar is greater than the value ofthe projected trend hne for the low 1\ pair, then the second condition is satisfied. Finally, the of each trend hne must be less than the ma.ximum specified slope to avid acute triangles. We scan for obtuse triangles that resemble shims, as shown in Figure 5.10.

>DXLASH?aily 02 ) / 01 Mov Avfll line 22.«e Acme Triangle

-2S.500 I2S.IMO

Figures. 10. Stealth Triangle

To trade a triangle, we wait for the stealth formation and then enter a trade on a break ofthe highest or lowest bar ofthe nesting triangles. In each ofthe triangle examples inFigures 5.11 and 5.1Z the slope ofthe moving average is aguide to trade direction. Trade triangles inthe direction ofthe trend, checking whether or not the triangle is above or below the moving average.

Like the rectangle, the triangle is a short-term formation for d trading, although it does not have as much reversal value as a rectangle. The triangle is more biased towards the prevailing trend, giving the trader a chance to enter on a consolidation pattern.

Avll......lrl ).........In

PECS LASTJlaily OSKVZDDI Mov Avg 1 inejClDse.SO.DJ 14737

Figure S.I I. PECS Stealth Triangle

Hip.r«%.\2. Sl-Af Sl.alll,ln...,slr

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