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How to find non existent patterns in the charts

Posted on 8/13/2009
  • Look at this chart of JRJC very closely.
  • What pattern do you see?

  • This is the same chart do you recognise the period before EP.
  • Does it remotely look like what it looked pre EP ?

  • When a stock makes a big move the perception distorts the earlier chart.
  • That happens because the chart gets compressed and the tall move above makes the earlier move look less volatile.
  • It looks like a breakout from flat base.
  • This is one of the problem with many of the easily recognisable patterns in chart "after it has made a big move".
  • The cute cup with handle does not look so cute when it is actually getting formed.
  • The subsequent perception distortion makes it look proper cup with handle.
  • In 2006 Stocks and Commodities Magazine had a article titled " The Bowl Pattern Breakout".
  • It showed stocks like NTRI. GGR, PRLS, FPP, VPHM, GMXr TIE.
  • All of them had made big moves and were EP kind stocks.
  • The author said if you look at the chart, you could have found this chart using a bowl pattern.
  • The problem is if you look at the chart before breakout, they did not look like a bowl.
  • The subsequent big move made the earlier pattern look like bowl.
  • So in hindsight it looked like bowl pattern.
  • The article had everyone excited and every one was trying to find scan for "The Bowl Pattern b/o"
  • Any stock which makes 300% plus move after a breakout, will have its previous chart pattern looking very neat and compact.
  • But when the actual breakout happened it did not look that way.