Wednesday, April 29, 2009

Looking for the Hairy Bottom

Yesterday provided a classic example of one of my favorite daytrading trend reversal patterns...the hairy bottom.
The pattern is shown on 2 minute bars, although it can often be detected on 5 and sometimes 10 minute bars. The confirmation of the midpanel technicals is indicated by the green arrow, which was also picture perfect with the MACD histogram chugging across the zero line precisely at the entry trigger and the parabolics firing a BUY.
This type of convergence of trigger signals can be found frequently and provides the basis for initiating extremely high probability trades that typically run for at least 20 minutes. And, while there is no way of knowing the impending duration of these trades once entered, applying even minimal risk management and stop loss controls should produce a high rate of successful trade excursions.
The other side of the coin is, of course, the hairy top pattern and once you train you brain to see these patterns set up (especially when confirmed by the parabolics and MA crosses) your confidence level in entering these trades (and your equity curve) should increase substantially.

2 comments:

Stick Hansup said...

Hi BZB,

I do a setup similar to your HairyB, mostly in the SRS....but I use the parabolic as my stop. what's your opinion on that? thx

Stick

bzbtrader said...

Stick,
Depending on the timeframe you're watching, I also like the SAR to signal exits. Typically, I use 2 minute bar exits for my daytrading. As per some of my other posted setups, using a 3 & 7 MA cross on 2 minute bars also performs well for the Qs.