Why

Intro—pullbacks/TKOs (TKOs are a good pattern AFTER a persistent trend)

Money management/position management
-Have chart from 10 best book.
-Discuss X-bar trailing stop
-Discuss Longer-term trailing stop (at support/resistance)---see example in 10 best
(primer)

What is persistency?

-show chart (figure), walk-through day by day in persistent trend.

Mathematical measuring using Linear Regression Trendlines.

Simpler method
--drawing a line THROUGH bars.

Bars lying outside Top vs. bottom (see Q&A under persistency chapter).

Rules
--see chapter.

Watch Scaling!

Sector Action Important

Stacking the Odds in your favor: Market, Sector,stock.

Trade Management
Capturing longer-term moves: trailing stop example for longer-term move…..

Variations

Shorter-term—steeper/accelerating trend. (accelerating persistency)

Chinese water torture.

Trick you up:

Scaling
Wide-and-loose trend

Work in:
when I hit a drawdown, I come back to persistent pullbacks.
Study sideways S&P to see what sectors were setups (or hopefully were not setup).

NOTES/Brainstorm:

if you aren’t using money management, make sure you are showing something else…..

Intra-day patterns using something that people like, like the E-minis.

Examples:

Find some that are just plain awful.

What about divergent sector action?

Show S&P 4/10—05/15—persistency.

Between 04/10 and 5/15, the S&P was in a persistent uptrend.
Also of note is that this period is within a longer-term trend from lows.
On, 05/20/03 the S&P pulls back. The best time to trade is when the market itself is in a
persistent trend AND set up (SEE THE EXAMPLES in the back of the book where I
show the S&P, the Homebuilders and then the individual stocks). Notice that the
persistent trend resumes.

Late summer S&P---06/17---08/29---BAD!---summer trading….

(SPXBAD.GIF)
Eddie, here is an example of a bad period. I think a step-through on this would be really
nice. Notice that the S&P had persistent trends and persistent pullbacks----great times to
trade. Then notice the sideways trading range that developed. Late summers are notorious
for being thin and choppy.

Potential examples

Defense in early ‘03

NOC=---maybe money management….so so, come back.

GD-march…17 bars…not a big winner…maybe good for money mgmt.---so so, come
back.
BA=use, see charts.

YHOO---
09/10/03 TKO Entry = 35.30
09/11/03 2 bar pullback (3 if you count the 09/09/03 reversal bar) Entry = 35.07.
09/12/03 Long at 35.07, PS = 33.07, IPT = 37.07.
09/16/03 Close = 35.82 Raise PS to 33.82
09/17/03 close = 36 PS to 34
09/18/03 IPT hit, take half profits. C = 37.58, Stop to 35.58
Note: intermediate-term traders may want to keep stop under prior pullback.
09/23/03 C = 37.82, PS to 35.82
09/25—stopped
10/02 Trend resumes on 10/2, intermediate-term traders could trail below low of this
pullback.
10/09 Stock gaps sharply higher, Intermediate-term traders could trail below low of
breakout. At the time this is being published, you would still be long.

Property & Causality Insurance ‘03

XL.—Would like to show the sector action (or we can do it on other(s), I just don’t want
to go without emphasizing sector action).
02/18/03—TKO Entry, 71.70
02/19/03-Stock triggers an entry at 71.70. Protective stop (3-points) is placed at 74.70.
Initial profit target is 68.70 (3-points).
02/21/03 Stock continues to pull back but does not hit protective stop.
02/26/03 Stock begins to move in our favor. Close = 69.95. Lower trailing stop to 72.95.
03/3/03 IPT of 68.70 is hit so we exit half of our shares and lower our protective trailing
stop on our remaining shares to breakeven, the same as our entry (71.70).
03/04/03 Stock closes at 68.50 so we lower our protective trailing stop to 71.50.
03/10/03 The downtrend resumes. Stock closes at 66.88 so we lower our protective stop
to 69.88.
03/11/03 More downside action. Stocks close at 65.17, so we lower our protective stop to
68.17. Note, on a wide-range bar lower like this, since we now have over 6 ½ points of
open profit, it’s often a good idea to scale out of additional shares.
03/12/03 Stock closes at 64.57. We will continue to trail at 3-points. Therefore, we will
lower our protective stop to 67.57.
03/13/03 We are stopped out of our remaining shares at 67.57 for a gain of over 4 points.

ABK-02/18/03—so so, come back.

CB-around same time…could be good money management example…nice resumption,
but reversal. Entry, 02/28/03 at 47.38. , good 2-point trailing stop example., note prior
“knockout” bar on 02/18/03 could have been traded----I like the one on 2/28 better
because it was a more obvious “knockout” move.

AIG---slow start 02/18/03 –come back, don’t like gap.

LTR---slow start….come back, do like the fact that it comes off a new highs (aka first
thrust, not 10-points…could be confusing).

PMI---02/28---come back, possible mm example.

NFS-03/17---GOOD STOP OUT on first day!—life insurance……USE, see examples
section for intra-day entry on witch hat----what I want to do is to create a daily bar intra-
day…show the bar dropping to trigger, then show the bar rising. Entry, 23.47, PS 24.97
—emailed.

NFS is in a persistent downtrend.

On 03/14/03, the stock pulls back. Entry = 23.47, Protective stop = 25.07 (1.5 points, see
chart).
On 03/15 the stock triggers an entry and we go short. The same day, the stock rallies and
stops us out for a 1.5-point loss.

ALK SEPT-didn’t really work.---trend eventually resumed but pattern DID NOT
CATCH it. Stopped out. ENTRY 28.46 on 09/12/03, IPS = -1.5 = 26.96, trail stop to
27.21 on 09/12 (same day), 27.45 on 09/15/03, 27.59 on 09/18, 27.70 on 09/23/03,
stopped on 09/26/03. (email sent).

KVHI-09/11/03—possible frustrating trade. ----come back.

BBY 07/26/02-short—possible knockout/re-entry. ---come back.

KLAC 06/18/02—49.59-USE.
During early summer of ’02, the semiconductors were in a persistent downtrend. Let’s
take a look at Kla-Tencor.
On 06/18/02 KLAC sets up as a TKO. The entry is 49.53. Using a 2-point protective stop,
the protective stop would be 51.53 and the profit target would be 47.53.
06/19/02 The stock triggers an entry and we go short. Later that day, the protective stop is
hit and we take profits on half of our shares and tighten our protective stop on our
remaining shares to breakeven, the same as the entry (49.53). The stock closes at 47.41 so
we tighten our trailing stop on our remaining shares to 49.41, 2-points above the close.
On 06/20/03, the stock drops sharply, closing at 44.62. We tighten our protective stop on
our remaining shares to 46.42.
On 06/21/03, the stock closes at 44.04. We tighten our protective stop on our remaining
shares to 46.04.
On 06/24/03 our protective stop is hit on our remaining shares for a gain of gain of nearly
3 1/2 points.

On 06/28/02, the stock sets up as a another TKO with an entry of 43.57, protective stop
of 45.57 (2-points) and an initial profit target of 41.57.
On 07/01/02, the stock triggers and we go short. On the same day, it hits our profit target.
We take profit on half of our shares and move our profit target on the remaining shares to
breakeven—the same as our entry (41.57). The stock closes at 41.32, so we tighten our
stop further to 43.32.
07/02/02, the stock closes at 40.20. We tighten our stop to 42.20.
07/03/02, the stock hits the protective stop on the remaining shares for a gain of $3.37.
ALK
On 09/11/03, ALK sets up as a persistent pullback. Entry 28.46. Protective stop 26.96
(1.5 points). Profit target 29.96.
On 09/12/03, the stock triggers. The stock closes at 28.71. We trail our protective stop
higher to 27.21.
On 09/13/03 the stock closes at 28.95. We trail our protective stop higher to 27.45.
On 09/18/03 the stock closes at 29.09. We trail our protective stop higher to 27.45.
On 09/23/03, the stock close at 29.20. We trail our stop higher to 27.70.
On 09/26/03 we are stopped out at 27.70 for a loss of .76.

..

IR 07/10/02—entry 44.74, I especially like the way the persistent trend came off of new
highs….(for reasons similar to those listed under reversal gap strategy…..I can write
something here…I think a “Chinese water torture” for the longs….hey there’s my next
strategy!!!!! A slow persistent trend off the highs……., all kidding aside, let’s call these
versions, Chinese water torture since the constant dropping of the stock FINALLY wears
out the longs!!!!).---emailed…..

IR
On 07/03/02 IR is in a persistent downtrend. What I like about this trend is that it began
from new highs. Therefore, everyone who bought the stock around the new highs is
suffering a loss. Further, as the stock persists lower, it becomes a “Chinese water torture”
for those long. Many times, in these situations, the longs are finally worn out and the
stock begins to accelerate downwards.

On 07/09/02, the stock is set up as a pullback. Entry is 44.74.

On 07/10/02, the stock triggers an entry and we go short. A protective stop is placed at
46.74, two points above the entry. This gives us an initial profit target of 42.74.

On the same day, the stock comes within 2 cents of the initial profit target. When it gets
this close, don’t split hairs, lock in half of your profits and move your stop to breakeven
—the same as the entry (44.74).
07/11/02 The stock closes at 42.12. Lower your trailing stop to 44.12.
07/15/02 The stock close at 41.66. Lower your tailing stop to 43.66.
07/16/02 The stock closes at 38.24. “ “ 40.24.
07/18/02 “ “ 36.47 “ “ 38.47
07/19/02” “35 “ “ 37
07/22/03 “ “ 33.96, at this point we have over 10-points of open
profits. When you fortunate enough to capture this large of move, it’s often a good time
to take additional profits. Lower your protective stop on remaining shares to 35.96
07/24/03 Stopped on remaining shares at 35.96 for a gain of 8.80 points.
..

GENZ
(eddie, I may have to walk you through this one. I really didn’t have a “mechanical” way
of defining EXACTLY where the stops should go because the stock didn’t really have
perfect pullbacks---see example at the end of Primer).

Persistent trends often continue often continue longer-term.

Here’s an example of how an intermediate-term trader or those willing to take on slightly
more risk can capture a longer-term move.
GENZ is in a persistent downtrend which is actually part of a longer-term downtrend.
On 5/15/03 the stock sets up as a TKO. Entry 35.80, Protective stop 37.80, IPT 33.80.
On 05/21, take partial profits ($2) at 33.80. At this point, swing traders would then
tighten their stops to breakeven. However, those willing to take on more risk in order to
capture a longer-term move, could leave the protective stop on the remaining shares at
the original levels---2 points above this orginal entery which also corresponds to the high
of the TKO bar.

On 05/23/02 the stock rallies but does not trade above the original TKO bar (a). Also
notice that, so far, the persistent trend remains intact (draw line showing an extensiton of
the persistent trend). On 06/03/02 the stock begins to accelerate in its downtrend, at this
point, tighten the stop to the LAST TKO bar (05/23/02), 06/11/02 another wide-range bar
lower. Since the last TKO bar (b) is so far away, we will tighten the stop to the last minor
pullback (06/05/02)—31.59, Remember looser stops will keep you in the trend longer,
but the trade off is that you will give back larger part of that gain should the stock
reverse sharply. 06/20/02, the stock gaps sharply lower. On such an extreme move, even
a longer-term player should consider scaling out of additional shares. Since the gap and
last pullback is so huge, the stock could then be trailed lower on a point basis. In this
case, the stop could be tightened to 2-points above the closing price (21.70). On 07/01,
the stock appears to be resuming its downtrend. At this point, tighten your protective stop
above the recent base that has formed (20.45). On 07/08/03 the stock trades above that
prior base and we are taken out of our remaining shares.

HMOS-first qtr 02—study….done, see examples.

CI on 04/09/03 has a TKO after a persistent uptrend from lows—go long tomorrow at
48.20
On 4/10, the stock is now set up as a pullback. Go long tomorrow at 47.25 (10 cents
above high). PS = 45.25 (2 points), IPT = 49.25 (2 points).
04/11/03 the stock triggers and we go long
04/14/03—tighten stop to 45.50 (2 points below close).
04/15/03----“ “46.41
04/22/03 “ “ 46.81
04/23/03------Take partial profits at 49.25, raise trailing stop to 47.28 (2 points below
low).
04/24----47.87
04/28----48.34
04/30----50.30
05/01----51.65
05/02/03---stopped on remaining shares.

JBLU

SNDK-09/11/03—could be a good longer-term example….come back….

FDRY 09/12/03—possible good money management.

JNPR-09/10/03—good if you want to show gap….(compare to Rev. Gap Strategy).

JNPR was in a nice persistent uptrend. However, on 09/10/03, just one day after making
new highs, the stock gaps down. As a general rule, I usually ignore stocks that gap
against the trend. In fact, I actually have a reversal strategy as defined in “Dave Landry’s
10 Best Patterns and Strategies” that I trade off of gaps that occur soon after a stock
makes a new high (click here for the rules if you do not have the book).

EMC 09/11/03---good money management-trade that didn’t work even though it looked
like a good trade.
On lower priced stocks, the 10 point rule can be decreased to accommodate the price of
the stock. For instance, in this example EMC only rose 4.36 points during its persistent
trend, However, based on the price of the stock where the trend began on 07/25/03—a
low of 9.61, this constitutes a 45% increase—enough to consider as a persistent pullbacks
candidate.

09/11/03—setup as TKO, entry 13.48, PS 12.48, ipt 14.48

09/15/03—trigger.
09/16/03---Trail ps at 1 point below close----12.65
09/17/03—“ “ 12.77
09/18/03---12.93.
09/24/03---stopped at 12.93 for a .55 loss….

INFY—good accelerated Persistency. (NOTE: since they are getting the book, why not
show some examples that RELATE to the book)…

Here’s an example where the persistency begins to accelerate. This is in the spirit of my
Accelerating Momentum Strategy from “Dave Landry’s 10 Best Patterns and Strategies”.
Notice that between 08/15/03 and 09/03/03 the stock begins to persist higher, climbing 9
points in 12 days. The trend then accelerates as the stock gains over 10 additional points
over the next 4 days.

09/10/03—the stocks sets up as a TKO. Entry—67.10, PS—(see primer chart) 64.60

($2.50), IPT-69.60.
09/11/03- go long at 67.10
09/15/03—stopped at 64.60. for a loss of $2.50. The stock remains setup as a persistent
pullback though. Because the bar is such a narrow range, the entry will be placed above
the 2-bar (09/12/03) high. 65.65.
09/16/03 The stock trades at 65.65 and we go long. PS = 63.15, IPT = 68.15
09/16/03 (same day), the profit target is hit. Exit half of your shares and raise your
protective stop on your remaining shares to breakeven, 65.65.
09/17/03—stock closes at 69.10, trail ps at 2.5 points, raise stop to 66.60.
10/02/03---stock closes at 71, trail stop at $3 trailing stop (see primer chart—stock is now
at $70). Therefore, raise stop to 68. Longer-term traders may want to trail to prior base
(a).
10/03/03 Stock closes at 73.69. Raise stop to 70.69.
10/08/03 stopped at 70.69.
NOTE-notice that trend continues and did not take out prior base(a).
On 10/10/03 the trend accelerates. If you are trading as a longer-term trader, raise your
stop to below the low of this pullback (b). ----Still long at the time this is being published.

VIP—09/10—possible good re-entry example.

FIND MAJOR FRUSTRATING EXAMPLE.

BARZ- 06/24/03

SYMC—09/11/03 ---good example of multiple patterns/trend acceleration.

SYMC is in a persistent uptrend and in more recent times, an accelerating uptrend.

09/10/03 SYMC sets up as a TKO. The entry is 59.58, with a protective stop at 57.08 (2.5
points) and a initial profit target of 62.08.
09/12/03 The stock triggers and we go long.
09/16/03 The stock closes at 61.06. Raise your protective stop to 58.56.
On 09/17/03 the stock comes within cents of the profit target. When it gets this close,
because you there is no guarantee that the stock won’t reverse, don’t split hairs, lock in
profits and move your stop on your remaining shares to breakeven—the same as the entry
(59.68).
On 09/18/03 The stock has a wide-range bar higher, gaining over 2 ½-points. On wide
range bars higher like this, it’s often a good idea to lock in profits on additional shares.
The stock closes at 63.91 so we raise our protective stop to 61.41.
09/23/03 Another wide-range bar higher. Again, in situations like this, it’s often a good
idea to lock in profits on additional shares, especially since we have over 6-points of open
profits. The stock closes at 65.79. We raise our protective stop on our remaining shares to
63.29.
09/25/03 We are stopped on our remaining shares for a gain of 3.71.

YHOO—traded by nunez. Potential longer-term money mgmt? 09/11/03

INSP—possible stop out/money mgmt type example?......buy back? Psychological? (let
it go or re-entry)….
ABTL-potential frustrating example.

Shorts:
QCOM Jan 02…

LONGS:

Check out N and other metals—current period.

BA
In spite of the ongoing Iraqi war, Defense stocks were in a persistent downtrend in the
first quarter of 2003. Let’s take a look at Boeing.

On 3/19/03, BA sets up as a 5-bar pullback after a persistent downtrend. This gives us an

entry of 27.45 with a protective stop of 28.95 (1.5 points above the entry) and an initial
profit target of 25.95.
On 03/20/03, the stock triggers and entry and we go short.
On 03/24/03, the stock closes at 27.03. We trail our protective stop to 28.53, 1.5 points
above the closing price.
On 3/26/03, the stock closes at 26.40 so we lower our protective stop to 27.90.
On 3/28/03, the stock closes at 26.10, so we lower our protective stop to 27.60.
On 3/31/03, the stock gaps lower to 25. Since this is below our profit target, we
immediately take profits on half of the shares for a gain of 2.45 and tighten our stop on
our remaining shares to breakeven (27.45). The stock closes at 25.06 so we tighten our
protective stop on our remaining shares to 26.56. Note, in a situation like this where the
profit target is exceeded on the open, it’s usually a good idea to tighten the stop below the
breakeven level intra-day as opposed to waiting to see where the stock will close.

On 4/2/03 we are stopped on our remaining shares at 26.56 for a gain of .89.

_____________________________-

IDEA—daytraders could play opening gap reversals! E.G. XL 2/11/03

Rules:
Persistent trend as defined under Persistent Pullbacks Setup.
Stock gap below (at least) a two bar low.
Enter when the stock trades above the prior low or enter on a breakout of the opening
range.

For the persistent run in the homebuilders, I want to show the sector itself (see the double
top knockout in the example section of 10-best). Ideally, I’d like to show a walk through
similar to the scenario presented in the book: MARKET/SECTOR/STOCK(S).

LEN-accelerating Persistency-come back

HOV #1
As you likely know, sometimes in a trade you don’t get immediate gratification. Here’s
an example of by sticking with a stock as long as it doesn’t do anything “wrong”, the
occasional large move can be caught.

From 03/06/03 to 04/23/03 HOV in the strong homebuilders is in a persistent uptrend.

What I like about this stock is that is in a longer-term uptrend from lows (a).

04/25/03 The stock sets up as a TKO, giving us an entry of 40.11, protective stop (2-
points) of 38.11 and initial profit target of 42.11.
04/28/03 The stock is now setup as a three bar pullback (four if you count the reversal bar
at new highs). At this point, you could either enter above the TKO high of 04/25/03 or
trade it as a pullback. Since the homebuilders remain in a strong trend, we will trade it as
a pullback (vs. waiting for more confirmation by requiring the stock to trade above the
04/25/03 high). Therefore, our new entry will be 39.85. If filled, our protective stop will
be 37.85 and our initial profit target will be 41.85.
04/29/03 The stock triggers an entry.
For 6-days (counting the entry as day 1), the stock trades essentially sideways. However,
during this time, your stop is not hit. Further, the longer-term trend still appears to remain
intact. Then, on 05/07/03, after trading lower, the stock breaks out to new highs, hitting
our initial profit target. Exit half of your shares and move your stop to breakeven (39.85),
the same as the entry.
05/0903 The stock closes at 43.31. Raise your protective trailing stop on your remaining
shares to 43.31 (we are trailing with a 2-point stop).
05/12/03 The accelerates to new highs. On wide range bars like this, it’s usually a good
time to scale out of additional shares. Especially since we now have nearly 6-points in
open profits.The stock closes at 45.83. Raise your protective stop on your remaining
shares to 43.83.
05/13/03 The stock closes at 46.73. Raise your protective trailing stop on your remaining
shares to 44.73.
05/16/03 The protective stop is hit to take us out of our remaining shares for a gain of
4.88 on those shares.

HOV #2
HOV, from the prior example, is now set up again. Some people from a psychological
perspective have a hard time coming back to a stock after being stopped out for a gain. I
suppose they feel like they are “getting greedy” or that they “already caught the move in
that stock.” For me, I treat it as a brand new setup.

With that said, see that the stock was in a persistent trend and in more recent times, an
accelerating persistent trend.

On 05/16/03, the same day that we were stopped out on the prior example, the stock sets
up as a pullback/TKO giving us an entry of 46.18.
05/19/03 No trigger but the stock remains set up as a pullback. Entry 44.80.
05/20/03 The stock triggers an entry of 44.80, giving us a protective stop of 42.80, Initial
profit target of 46.80 and a initial protective stop of 40.80. The same day, the stock closes
at 45.05. The protective stop is raised to 43.05 (trailing the stop at 2-points).
05/21/03 The stock closes only a few cents higher. In a situation like this, I usually don’t
bother raising my protective stop.
05/22/03 The stock rallies to hit the profit target of 46.80. We take partial profits and
move our stop to breakeven (the same as the entry, 44.80). The same day, the stock closes
at 47.91. Therefore we trail our stop higher to 45.91 on our remaining shares.
05/23/03 The stock closes at 49.55. Trail the stop higher to 47.55.
05/27/03 The stock closes at 50.32. We will now trail the stop more loosely (with a $2.50
trailing stop) since the a) we have a large open profit and b) the stock is now above $50
(see stop chart). Speaking of open profits, with over 5 ½-points profits in 5-days, now
would also be a good time to begin thinking about taking additional partial profits on
remaining shares. We raise our protective stop on our remaining shares to 47.82 (close of
50.32 - $2.50).
05/28/03 The stock closes at 52.31. We raise our protective stop on our remaining shares
to 49.81.
05/29/03 The stock gaps over 4 points higher on the open to 56.50. On these “euphoric”
“blow off” type moves, it’s often a good time to “let ‘em have it”—scale out of additional
shares. This is especially true when you consider that we have nearly 12-points of open
profit. The stock closes at 55.45. We trail our protective stop higher on our remaining
shares to 52.95.
05/30/03 The stock resumes its rally, closing at 57.95. We trail our stop on our remaining
shares to 55.45.
06/03/03 The stock closes at 58.05. Since this is only 10 cents higher the previous high
close, you could leave the stop were it was (55.45).
06/04/03 The stock closes at 60.19. We trail our stop on our remaining shares to 57.69.
06/05/03 The stock has a wide-range-bar higher, rallying nearly 4-points. Again, if you
haven’t already done so, on these “parabolic” moves, it’s often a g.ood time to look to
scale out of additional shares. The stock closes at 63.90 so we trail our stop on our
remaining shares to 61.40.
06/06/03 The stock gaps higher on the open but reverses to stop us out on our remaining
shares for a gain of over 16 points.

HOV#3
On 06/09/03 Yet again, the stock sets up as a TKO. This is where the decision to go back
to the stock becomes a little tougher. At this point, the stock and the homebuilders are
quite extended. However, the knockout move is very significant—the stock droped nearly
8 points in two days as measured from high to low. The sector itself had made a similary
drop. When you do decide to take a trade like this, you have to be willing to accept the
added volatility. Therefore, it’s often a good idea to trade fewer shares to help
compensate for the added risk. The entry is 61.34, protective stop 58.84 (risk of $2.5, see
chart), initial profit target 63.34.
06/10/03 The stock triggers an entry of 61.34. The same day, the stock closes at 61.79.
We raise our protective stop to 59.29.
06/11/03 The stock hits our initial profit target of 63.34. We exit half our shares and
move our protective stop on our remaining shares to breakeven, the same as the entry
(61.34). On the same day, the stock closes at 65.38 so we raise our protective stop on our
remaining shares to 62.88.
06/12/03 The stock closes at 66.61. We raise our protective stop on our remaining shares
to 64.11.
06/16/03 The stock closes at 69.17. We are up nearly 8-points in 5 days, when you are
lucky to capture such a nice move over such a short period of time, it’s often a good time
to lock in additional profits (scale out). We raise our protective stop on our remaining
shares to 66.67.
06/17/03 The stock gaps open to 70.50. We are now up over 9-points. As you know, gap
openings often offer an opportunity to lock in additional profits.
06/18/03 The stock trade below our protective trailing stop and we are stopped out on our
remaining shares for a gain of 5.43 on those shares.

HOV #4
On 06/19/03 The stock sets up yet again. At this point, you really have question whether
or not it will be worth the risk to continue to trade the stock at these extended levels.
On 06/20/03 The stock sells off hard. At this point, you should begin to question whether
or not the sharp sell off from highs is the beginning of a new trend. Also of interest is the
fact that the stock has pulled all the way back to near the area of the prior pullback. This
could be another close that the trend is ending---since it gave back all of its gains from
the prior leg up.
On 06/23/03 The stock makes a lower low, hitting 61.25. The stock has now given back
100% of its last leg up (from 61.34 on 06/09/03 to 70.50 on 06/17/03). Again, at this
point you need to question further the fact that the trend could be ending. For example
purposes, let’s assume that we take the trade anyway. The entry would be 64.27, with a
protective stop of 62.24 (2.5 points).
On 06/25/03 The stock trades below our protective stop and we are stopped out for a loss
of 2.5 points.

Question, you talked about the fact that you have to question whether or not the stock
tend may be ending since it retraced 100% of its last leg. Doesn’t this begin to form a
bullish “Witch Hat” pattern as described in your 10 Best manual?

Answer: It does, however, I prefer more “micro” Witch Hat patterns on the long side.
This is because stocks on the short side are more prone to false moves after sharp
retracements (i.e. short covering). On the long side, sharp retracements can often signal
the end of a trend. Keep in mind that there’s nothing wrong with taking the above trade,
provided you realized going into it that you would be possibly taking on more risk.
Therefore, fewer shares should have been traded and, of course, protective stops would
have to be honored.