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PnF Scenarios
clarkj
✭
I have been doing PnF charting for about 12 years now. I have certain strategies that I have developed over the years and I am always looking for ways to improve. Books and additional online information are always giving me different advice on how to invest. I would like to post several PnF scenarios giving you my ideas for discussion. Any thoughts or opinions would be greatly appreciated.
On this first scenario (0010 ERO.TO) I would have bought half the position on the TripleTop Breakout at 26.00 and place a sell stop order at the Double Bottom Sell at 21.00. As @lmkwin has suggested, I would fill the position on a confirmed pullback (reversal to O and back to X) on the smaller scale using the 3%x2 Close Only as the final decision maker on a buy.
On this first scenario (0010 ERO.TO) I would have bought half the position on the TripleTop Breakout at 26.00 and place a sell stop order at the Double Bottom Sell at 21.00. As @lmkwin has suggested, I would fill the position on a confirmed pullback (reversal to O and back to X) on the smaller scale using the 3%x2 Close Only as the final decision maker on a buy.
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I see a couple other triple tops prior to the last one. All but the last one have given confirmation on the traditional scale, by being able to change to O's and then back to X's AFTER the TT breakout. In Oct/Nov 2020 and again in March 2021.
The current column is a pole column. It exceeds the previous column by at least 4 boxes. These type of extension are usually followed by a pullback. Look left on the chart and note how many or what percentage of the prior pole columns pulled back for a spell. I see pole columns in April, May and June 2020. June and Sept 2018. Jan, Apr and June 2019
I suggest that you may see things by changing the scale. In this case, the 3% is a smaller scale. If you like to use the traditional scale, just cut the box size down. So it's currently a 1 point box. Use the User Defined option to change it to a 3 box rev 0.50 for example. It may provide some additional insights. The better securities will show bullish on pretty much all scales. Or... better put, will not be showing bearish indications. Poles are expected to retrace some. It's not necessarily a bad thing, it's just an observable characteristic.
You may also note that the Triple Top on the Traditional scale at 26 was a Spread Triple Top at 25.50 on the 0.50 scale. Does this information help in analysis?
Now, I do not have issues with stocks trading at all time highs, but I do note a CSS pattern (3 or more Consecutive Sell Signals) Feb/Mar 2020 on the Traditional 3 box chart. This is a sign of significant distribution. It was followed dynamic column of X's. A sign of significant accumulation. I use a column of X's at least 7x's high or 2 columns of 6x's (need not be consecutive columns) as long as the 2nd column of 6xx has a higher bottom than the 1st. For securities UNDER $10 I convert down a box so a 6xx or 2 columns of 5xx are used. In this case you have 2 columns of 5xx higher bottom in March 2020. That 2nd column is a 6xx column.
I often find myself answering "After a dynamic CSS pattern" to the question "When would have been the best time to buy this security?"
Secondly, if I would have decided to buy on 05-May at 26.00 do I have the correct “rules” as stated in my scenario.
More scenarios to follow. Thanks.
I can't say that there are "correct rules" for anything but would ask about the stop.
Does the chart appear bearish at 21? Or is it just a "reasoned" stop for a position taken at 26? On the Traditional scale, 21 appears to be above the bullish support lines. In the whole move from the March 2020 bottom there have been 3 sell signals shown. 5 if you include the High Pole Warnings. Those 3 certainly didn't provide a good exit in hindsight. The late great Earl Blumenthal said that the first signal in a new trend is often unreliable, the 2nd is more reliable. Note how it couldn't put together 2 sell signals in a row.
A Buy Signal is just a name, as is a Sell Signal. It's just a designation of a pattern. It's not a command or instruction. Not all Buy Signals are timely opportunities to take action. Same with Sells. Like I said, I have nothing against securities hitting all time highs. I love when that happens. At Dorsey Wright they would give a Technical Attribute (TA) score to the stock on a scale of 0 to 5. It gets a point for each of the following. Positive Trend on the Price Chart. RS buy signal, RS column in X, Peer RS buy signal, Peer RS in column of X. They suggest looking to buy the ones that are a score of 3 or higher.
ERO.TO header info from DWA
Here's a fun bit of anecdotal trivia. I did several studies on various index holdings annual returns over the years. The best performers increased their TA score by 2 or more. The worst decreased their TA score by 2 or more.
I'm not familiar with the .TO and don't normally run scans on .TO but could give it a look to see some current charts of the type that I tend to look at. I've done over 7 years of research and refinement of the CSS Strategy. It's quite interesting and profitable from my studies and real life experience. But it definitely is not for everyone.
I also see a CSS pattern. In hindsight entering the position around Apr/Mar 2020 would have been nice but nothing indicates that should have been done. Am I seeing a reversal confirmation around Feb 2021?
Comfort is important. It is my experience that setting a stop on a bullish chart at a level that the chart would still be bullish, limits the risk for sure, but also limits the opportunity. In my opinion, I believe that they need to be set at a place where my reason for buying the stock is no longer valid. If a sell signal is your spot, and you are comfortable, then that is good.
Hard Stops can be a good things in some circumstances. I rarely use them personally but I used to. I'm not comfortable having my standing sell orders showing to anyone unless they are stop limits above the current levels. Not that it makes a difference to "them". They love to take my shares at a potential reaction lows.
Some clarification:
The Dynamic pattern includes the CSS and after that I look for a column of X's that is at least 7 X's in length OR 2 columns of 6 X's high, 2nd column has a higher bottom than the 1st. This column may or may not be the next column or columns after the CSS is shown. There may be "buy" signals in between the CSS and the 7xx. All that needs to show is that X column as described above. For stocks under $10 at the time, this requirement is reduced to a column of 6xx or 2 columns of 5xx (2nd column higher bottom than 1st).
So there is a CSS that started in Oct 2018. 3rd CSS in Aug 2019. AFTER this I look for the column lengths mentioned. I see a 6xx formed in Oct, from 9-11.50. Once you see this you can start review on alternate scales. I suggest 3%x2 but changing the box size or reversal to get a different view. CLOSE ONLY prices also change the view. The chart in the Oct move (upper highlight). Note the MA's didn't change their look. The chart in the April move (lower highlight) something looks different there.
This is where the alternate scales and views come in. 3%x2 has no magic talisman. I just suggest that once you see a pattern you like on the Traditional scale, also check it out on other scales. Change the box size on the Traditional if that is a favored view. Or change the reversal amount. It can be helpful in analysis.
If your plan is to take profit at a specific level, that is good. Taking them in columns of X, also good. It does reduce your rewards. I am not a trader and focus on a different set of patterns. I tend to manage the stocks that go down or nowhere more than the ones that are working well.
Extending the 3% chart for STLC.TO out to Oct 2020 you can see that there were other opportunities along that very powerful column of X's to get involved as well. Some multiple tops showing.
Bear with me, I think I might be confused. I see a sell signal in Oct 2018. The next sell signal I see is not consecutive to that first one. Is there any way you can mark the chart to show the 3 CSS. Thanks.
Thanks for the clarification. Initially I only saw the 3-4-5-6. On the first scenario (0010 ERO.TO) the columns were consecutive, but now I understand.
I also see the 6xx formed in Oct, from 9-11.50. And since the stock is under $10 at the time, it is time to start reviewing.
In reality, I tend to focus more on the 6 or 7xx (or longer) columns and then try to determine what is happening. Is it "significant" distribution turning to "significant" accumulation? Often changing scales helps. Sometimes it doesn't. The answers do often become clearer for me though, reviewing on different reversals and box sizes.
A 3, 4, and 5 box length are pretty normal or common. A 6 box length is less common. The longer column lengths even less common. Of course it depends on the price at the time and the activity/volatility, but figuring the less common lengths can steer one away from being distracted by the "noise". I find the MA's I use also help.
I call the Poles, stealthy signals.
"Any other ideas to spot them easier?"
Unfortunately there is no scan for multiple sell signals on StockCharts. There is one on Dorsey Wright but I don't use it much. There are a few standard PnF patterns that are multiple sell signals, like Descending Triple Bottom, Bearish Catapult that are available on StockCharts.
I really tend to look for the last part of the equation in my scans. The 6 or 7xx or greater length column. I'll review those charts to see if they follow along with what I'm looking for. Signs of significant distribution, turning to signs of significant accumulation. "Significant" is an objective word. The longer column lengths can help tell the story.
For example, many may hear multiple sell signals and think BEARISH stocks and think 52 week lows, below bearish resistance line, and that isn't necessarily the case. CSS patterns also form in periods of re-accumulation also. After a run up, a pause, and then a renewed breakout.
Here's a fun chart (2020-2021). Can you spot the three 3xCSS or greaters showing on this chart? All above the Bullish Support Line. (Hint: One of them is a High Pole followed by 2 more sell signals)
Or part 1 of this delicious chart (2008-2015)
or part 2 of that same chart (2015-2020)
part 3 (2020-2021)
All above the Bullish Support Line.
Depending on the stock and the activity a BSL or BRL may be strong or weak. I like to use the MA lines as they often move closer to the price action. Where the price intersects the MA is a good place to be aware of as it often will be a point where the most filled rows are at that time. Most filled rows are where the price is consolidating or a congestion area.
"I will have to review many charts to start getting the acquired skill."
The best way to learn a new skill is by practice. When looking at the examples on this response, do you see a point where you would have gotten interested in the chart? I often find myself answering "After a CSS pattern" to the question "When would have been a great time to buy this stock?"
BTW, the "delicious" chart is AAPL
As well your charts show both buy signals and sell signals by highlighting. That helps alot but is not available on SC is it?
The charts shown are taken from the Dorsey Wright platform. Coloring signals is an option there. It certainly does helps on view. I do most of my research using the StockCharts platform as it's much more flexible and very fast. Also, you can't do MA lines or Volume by Price on Dorsey Wright. Changing to alternate scales and back again is very cumbersome as well. They also don't use adjusted prices like they do on StockCharts so sometimes the signals or patterns can be slightly off between the two as SC uses adjusted prices by default.
You also can't see a traditional line chart on Dorsey Wright. I do review those as well for further analysis. You can't default to a PnF chart on Stockcharts if using scans and alerts. I use scans and alerts so I tend to use either a weekly Heikin Ashi chart or a daily Renko chart as my "default".
If SC ever gets around to working on improving their PnF charts, I've made a lot of suggestions over the years. They haven't touched it in the years I've been a member but it is Spring now so maybe this year..........
As well I think I see the High Pole at 134 but it is not followed by 2 consecutive sell signals. Doesn't the buy signal at 138 negate the pattern?
The High Pole at 134 is followed by more sell signals, consecutive sell signals. The pole column is 130 to 144 or 8x's. The High Pole retraces greater than 50% of the pole. For simplicity, I use 5 boxes on an 8 box pole. The "definition" uses 4 boxes. I use 6 boxes on an 11 box pole. 7 boxes on a 12 box pole, etc. Easier for me to see that way. Or, in my methodology, count the boxes showing or "exposed" in the pole and it should be less than the retracement length count. Current pattern shows a pole column that isn't a low pole in my method. It is a 2x6xx after 3 or more CSS though.
On chart 2 of 4 I see one 4xCSS.
On chart 3 of 4 I see one 3xCSS and one High Pole
On chart 4 of 4 I see three High Poles but no CSS
Chart 3 (Part 2) there are 2. 1 3x and 1 5x no high pole involvement in the CSS
Chart 4 (Part 3) there is 1. 1 HP CSS (the most recent activity)
On Chart 4 I see the most recent HP (the last 2 columns) but I don't see any sell signals after that.
After adjusting my notes to show 3 boxes, I now see chart 4 (and the others for that matter) correctly. Thanks for your patience.
In my notes that I keep on my portfolios, I try to note type of pole pattern potential I observed. I started using 5 box away prior column to define a LP or HP in my notes. I use WLP or SLP for a traditional 4 boxes away from prior column (Blumenthal and Burke definition). And for 6 and above (Shah definition), SLP or SHP for a strong high pole or low pole.
Of course, I use a different way to describe it as the traditional way to talk about poles is to relate the pole column to the prior column of the same suit. X's to X's, aka prior high, and O's to O's, aka prior low. I just refer to the neighbor column.
"The high pole warning is given when a chart rises above a previous high by at least 3 boxes, before reversing to give back at least 50 percent of the rise."
I believe that the longer the column, the more information that is available. Remember, in PnF there are no price gaps. They are in the chart price data but you can't see them. Often they are hidden inside longer columns including poles.