<s> Getting Started in
CHARTPATTERNSThomas N. Bulkowski
John Wiley & Sons, Inc.
Getting Started in
CHARTPATTERNS
The Getting Started In SeriesGetting Started in Online Day Trading by Kassandra BentleyGetting Started in Asset Allocation by Bill Bresnan and Eric P. GelbGetting Started in Online Investing by David L. Brown andKassandra BentleyGetting Started in Investment Clubs by Marsha BertrandGetting Started in Internet Auctions by Alan ElliottGetting Started in Stocks by Alvin D. HallGetting Started in Mutual Funds by Alvin D. HallGetting Started in Estate Planning by Kerry HannonGetting Started in Online Personal Finance by Brad HillGetting Started in 401(k) Investing by Paul KatzeffGetting Started in Internet Investing by Paul KatzeffGetting Started in Security Analysis by Peter J. KleinGetting Started in Global Investing by Robert P. KreitlerGetting Started in Futures by Todd LoftonGetting Started in Financial Information by Daniel Moreau andTracey LongoGetting Started in Emerging Markets by Christopher PoillonGetting Started in Technical Analysis by Jack D. SchwagerGetting Started in Hedge Funds by Daniel A. StrachmanGetting Started in Options by Michael C. ThomsettGetting Started in Real Estate Investing by Michael C. Thomsett andJean Freestone ThomsettGetting Started in Tax-Savvy Investing by Andrew Westham andDon KornGetting Started in Annuities by Gordon M. WilliamsonGetting Started in Bonds by Sharon Saltzgiver WrightGetting Started in Retirement Planning by Ronald M. Yolles andMurray YollesGetting Started in Online Brokers by Kristine DeForgeGetting Started in Project Management by Paula Martin and Karen TateGetting Started in Six Sigma by Michael C. ThomsettGetting Started in Rental Income by Michael C. ThomsettGetting Started in Chart Patterns by Thomas N. Bulkowski
Getting Started in
CHARTPATTERNSThomas N. Bulkowski
John Wiley & Sons, Inc.
Copyright © 2006 by Thomas N. Bulkowski. All rights reserved.Published by John Wiley & Sons, Inc., Hoboken, New Jersey.Published simultaneously in Canada.No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form orby any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permittedunder Section 107 or 108 of the 1976 United States Copyright Act, without either the prior writtenpermission of the Publisher, or authorization through payment of the appropriate per-copy fee to theCopyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400, fax (978)646-8600, or on the web at www.copyright.com. Requests to the Publisher for permission should beaddressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030,(201) 748-6011, fax (201) 748-6008, or online at http://www.wiley.com/go/permissions.Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts inpreparing this book, they make no representations or warranties with respect to the accuracy or completenessof the contents of this book and specifically disclaim any implied warranties of merchantability or fitnessfor a particular purpose. No warranty may be created or extended by sales representatives or written salesmaterials. The advice and strategies contained herein may not be suitable for your situation. You shouldconsult with a professional where appropriate. Neither the publisher nor author shall be liable for any lossof profit or any other commercial damages, including but not limited to special, incidental, consequential,or other damages.The Index of Chart and Event Patterns reproduced from Thomas N. Bulkowski, The Encyclopedia of ChartPatterns, Second Edition (Hoboken, NJ: John Wiley & Sons, 2005). Reprinted with permission.For general information on our other products and services or for technical support, please contact ourCustomer Care Department within the United States at (800) 762-2974, outside the United States at (317)572-3993 or fax (317) 572-4002.Wiley also publishes its books in a variety of electronic formats. Some content that appears in print maynot be available in electronic books. For more information about Wiley products, visit our web site atwww.wiley.com.Library of Congress Cataloging-in-Publication Data:Bulkowski, Thomas N., 1957Getting started in chart patterns / Thomas N. Bulkowski.p. cm.Includes index.ISBN-13: 978-0-471-72766-8 (pbk.)ISBN-10: 0-471-72766-01. Stocks—Charts, diagrams, etc. 2. Commodity futures—Charts, diagrams, etc. 3. Investment analysis.I. Title.HG4638.B853 2006332.63’2042—dc222005017555Printed in the United States of America.10 9 8 7 6 5 4 3 2 1
To Mary SchramskiI found the answer to your question, “What is creative nonfiction?”
Contents
PrefaceAcknowledgments
ixxi
Chapter 1The Smart Money’s Footprints
1
Chapter 2Trading Psychology
5
Chapter 3The Truth about Trendlines
15
Chapter 4Support and Resistance: The Most ImportantChart Patterns
33
Chapter 5Special Situations
49
Chapter 6The Top 10 Performing Bottoms
73
Chapter 7Common Patterns for the Toolbox
vii
123
CONTENTS
viii
Chapter 8Event Patterns: What They Are and How to Trade Them
185
Chapter 9Busted Patterns: Making Money by Trading Failure
215
Chapter 10More Trades: Putting It All Together
239
Chapter 11The Art of Trading: Checklists
261
Chapter 12Crunching the Numbers
279
Epilogue/Closing PositionGlossaryIndex of Chart and Event PatternsIndex
285287293301
Preface
read that a chartist becomes world class after he views a million chartpatterns. If you analyze one pattern per chart on 250 stocks each trading day, it’ll take fifteen years to reach a million. Fifteen years! Wedon’t have that much time. I’m asking for only a few hours.Before we go any further, look at the cover of this book. See whereit lists the price? If you buy this book and make one profitable trade because of it, that money will be well spent. That’s cheap education, butI’m going to give you much more.Chart patterns are the footprints of smart money. The smart moneyleaves false trails. So if you’re like a close friend who looked at everythingbut the road when driving, you’re going to pick up bad habits. Thosehabits may cause you to freeze when trading so that you get in late or exitearly. The million bucks you dream about will be just that—a dream.My chapter on trading psychology keeps your eyes focused on the roadahead.After that, we make music discussing chart patterns, one by one, starting with the basics: trendlines, support and resistance, special situations—all geared to the beginning investor or trader, but it comes with tips andtechniques that will delight and inform professionals, too. I show you thetop 10 bullish performers and then discuss the band members. Thoseband members are the chart patterns everyone knows. They are yourbackup vocals. Together, they help you perform like a rock star. No performance would be complete without an audience, and that’s whereevent patterns come in. They are the audience, and I show you how tomake money from them.When fans scale the fences trying to get into the concert free, I discuss tactics to handle the busted chart patterns. Often, they represent thebest profit opportunities.Once you have met your band members and the stage is ready, thenit’s time for rehearsal. I discuss trades that I made throughout this book,
I
ix
PREFACE
x
but I dedicate an entire chapter to them. Study them. Learn what I didand consider what you would have done differently. Pull up the charts onyour own computer so that the patterns become familiar to you.The statistics I mention throughout this book are not guesses butthe results of studies that I conducted on over 38,500 chart and eventpatterns. Each statistic represents the performance of hundreds of patterns traded perfectly, without commissions or fees. You won’t be ableto achieve those returns, but these numbers provide a basis for comparison. I’ve included a table of performance statistics at the back of thebook with the chart and event pattern’s performance rank—so pick thepatterns you like. I also provide an index of chart patterns to help withidentification.Let’s meet Jake. He’s a character all right, but a fictional one. I usehim as a literary device to highlight actual trades, the points I want tomake, or just to keep things lively. If his trade mentions specifics—shares traded and the cost—then it is an actual trade that I made with myown money in the stock market.When the crew comes to pack up the gear for the next gig, I providetrading checklists so that you won’t forget anything. After that, you’ll beon your own, but in case your concert tour needs help, this book shouldremain at hand.Buy it.Read it.Make money.THOMAS N. BULKOWSKISeptember 2005
Acknowledgments
would like to thank the talented efforts of Pamela van Giessen, editorial director at John Wiley & Sons, senior production editor MaryDaniello, and assistant editor Jennifer MacDonald. These three makepublishing a book easy and fun. Almost. Thanks to Bernice Pettinatoat Beehive Production Services for proofreading the book. I am indebtedto Lt. Colonel James Bulkowski for acting as my support group.Thanks brother. And keep your head down in Iraq should you find yourself there.
I
Regarding Serious InquiriesIf you would like to contact me, e-mail me at tbul@hotmail.com. Makesure you fill in the subject line with something like “Chart pattern question” so that I don’t mistake it for spam and delete it unread. I’ll try to reply, but your patience will be appreciated. My web site address ishttp://mysite.verizon.net/resppzq7/.T. N. B.
xi
1Chapter
The Smart Money’sFootprints
J
ake was here to rob me.How he got near my office undetected was anyone’s guess, butmy hand shot to one of the panic buttons I have hidden. I didn’tpress it; something held me back. He reminded me of Clint Eastwoodwith white hair, tall and thin, yet with an inner strength stronger thangranite and a dimple that etched his chin when he smiled.“Sorry about that,” he said. “I didn’t mean to startle you. I’m Murphy.Jake Murphy.”His name meant nothing to me. My finger caressed the sandpapertop of the panic button, shaking slightly, my body tense, adrenalinepumping—my breath a pressure cooker waiting for release.“Have you ever heard of Murphy’s Law?” He smiled and pointed afinger at himself. If he was telling the truth, I was going to trade theopposite of everything he did. “I e-mailed you last week about learningto trade.”I started breathing again. My hand went to my chest and felt formy heart, but then a polite tone and a flashing green symbol on thecomputer screen caught my attention. I held up my fist, index fingerextended.
1
2
THE SMART MONEY’S FOOTPRINTS
Wait one . . .Jake froze.My hand returned to playing the keyboard, dancing over it with theskill of an accomplished musician.Thirty seconds later, having relieved someone of several thousanddollars, I looked back at Jake. “Please.” I waved him to the chair besidemine, seated at the feet of computer monitors staring at us like eyeballs.I had a special air-conditioning system installed just to keep those eyeballs and their bodies from frying. Computers are the cooking utensils ofa trader.“I’m not trying to embarrass you Jake, but I want the truth. Didyou use stops on every trade?”He paused for a moment, and his face took on the color of a stopsign. “No.” His voice sounded apprehensive, in contrast to the ClintEastwood growl through clenched teeth that I expected.“Did you buy near the yearly high to surf upward momentum?”He shook his head.“Did you look at the market averages and industry-related stocksbefore trading to see which way they were headed?”He looked down but said nothing.I felt like I was questioning my own father, but this torture chamberhad no bright light shining in his eyes, just padded chairs like those in aNASA control room. “Forget it,” I said touching his shoulder and thenpointing at the computer eyeballs staring at us. “What do you see?”He put on reading glasses and his head moved closer, examiningevery pixel, and then he backed away. The glasses disappeared into hispocket so quickly that I knew the specs were more than just a tool. Anembarrassment, perhaps? A sign that he was growing older and refusingto accept it? I discarded this clue about Jake Murphy.“You’re looking at the smart money. They know everything there isto know about that stock or any stock. Yet they have a weakness. Do youknow what it is?”He raised his eyes in thought and then snapped them back level.But he said nothing.“They can’t hide their tracks.” I pointed at one monitor. “Thosetracks are not squiggles on the screen. They’re footprints of the smartmoney. String enough footprints together and they form chart patterns.Those chart patterns give buy and sell signals. If you trade using thosesignals, you can make money.” I leaned back in my chair, hands clasped
The Smart Money’s Footprints
3
behind my head, eyes cycling between Jake and the monitors, scanningfor trading signals. “You do want to make money, don’t you?”His eyes lit up and he nodded.“What’s your story?”He cleared his throat and leaned forward in the chair. “I’m a selfemployed engineer nearing retirement, and I trade between jobs. Istarted trading using fundamental analysis, but when the fundamentalssaid ‘buy,’ nothing happened to the stock for months or even years. I gottired of waiting. I started looking at technical analysis. I tried moving averages. I tried Elliott wave. I tried cycles and candlesticks and indicatorsand black box systems. Nothing worked.“I want to afford health insurance. I want to have enough money tofeel secure in my retirement. It’s not hard to meet expenses. They’reeverywhere!”Then Jake dropped his eyes and turned away. I knew he wasn’ttelling me everything.
2Chapter
Trading Psychology
“W
hat aren’t you telling me?”Jake looked down at his shoes and rubbed one againstthe back of his pants, polishing it even though it didn’tneed polishing. If he were standing, I’m sure he’d be shuffling his feetwith embarrassment. After a lengthy pause, he admitted, “I want to haveenough money to do things that I couldn’t do when I was younger. I wantto live!”“A midlife crisis? I had mine when I was 30. I kept asking myself,‘What am I here for?’ and not finding an answer. It took almost a decadeto understand that I’m here to make a difference. But let’s talk abouttrading. You mentioned a telecom trade in your e-mail.”He started wringing his hands as if he were nervous or embarrassedtalking about it. “I worked as a computer technician once, so I knew allabout the telecom.” He researched the company’s fundamentals as besthe could, but solid information was scarce. The rumors, however, werelike ants at a picnic.“They’re going to lay enough fiber to circle the earth four times!”someone said at a conference.“I heard that insiders are buying like crazy,” said another. “Fourbought in the last month, six this quarter.”
5
6
TRADING PSYCHOLOGY
“I drove by HQ last week and the lights were on at three in themorning,” said a third. “I’m thinking: takeover.”“A friend of mine knows someone who knows someone who usedto work there. He said that two of the Baby Bells are interested. Thisstock isn’t a buy. It’s a steal!”Jake shook his head and rolled his eyes. “I bought 600 shares. Costme a grand.”Two weeks after he bought, apparently the rumors turned out to betrue because the stock moved up 30% to $2 a share. Everyone was talking about the company, how the stock was going to Pluto at warp 10.Then the stock stopped going up. It dropped a dime one day, then anickel. Two weeks later, it was down to his purchase price. “I thought: it’llcome back. I’ll just hang on until it reaches its old high and then sell.”The word in the chat room was that “The Company has a buybackplan in place. They’re forcing the stock down so the company can buy itback on the cheap.” Another said, “I heard that they’re planning to takethe company private. Management’s no dummy. They know a good opportunity when they see it. Buy more.”The stock eased down a little each day—no skydiver plunge, justslow torture.Then the chat rooms were aflame with a new rumor, sworn to betrue. “The company declared bankruptcy.”Was this an example of Murphy’s Law for traders? The obituariesconfirmed it. Trading at 50 cents, the stock gapped lower to a dime andflatlined like a dead animal.“Why didn’t you sell on the way down?” I asked him.His dimple appeared in a strained smile, and he shrugged his shoulders. “It wasn’t the first time, either.” He flew an airline stock into theground, receiving pennies instead of dollars for his investment when it,too, went bankrupt.“Why didn’t you sell the second time?” Good question. This chapter takes a closer look at why traders make such mistakes and how toavoid them.
Trading PsychologyLet’s tackle Jake’s problem first by conducting an experiment. Supposeyou had the choice of selecting Door Number One, which contains$500, or Door Number Two that holds either $1,000 or nothing. Whichdoor do you choose?
The Basics
7
Next, consider another two doors. Selecting Door One means youwill owe $500, and selecting Door Two means you will owe either$1,000 or nothing. Which door do you choose?In the first question, most people will select the $500 gain (DoorOne), but when it comes to losses, they prefer to take a chance on alarger loss by selecting Door Two. In the investment world, that meansthey cut their profits short and let their losses run—the exact opposite ofwhat they should do.“What can I do about it?” Jake asked.Use a stop-loss order. It sounds simple,stop or stopdoesn’t it? Without a stop in place when the tradeloss orderbegins to go bad, you have a choice to make: to sellan order to sell ator not to sell. That’s when the fear of taking a lossa price below orto buy at a priceappears. The pain of loss is two and a half times asabove the currentstrong as the joy of making a profit, according toprice.Gerald Butrimovitz, a behavioral finance expert.That means traders will take even greater risks toavoid losses. Having a stop in place takes the agonizing decision out ofyour hands. Either you’re stopped or you’re not. Chances are a properlyplaced stop will give you a smaller loss than if you try to manage thetrade without a stop. Unwillingness to use a stop is what separates an amateur trader from a professional. If you want to make money in the markets, then use stops on every trade.Raise the stop as prices climb. After I startedaverageusing stops consistently and raised them as pricesthe sum of theclimbed, my average loss decreased. I no longer sufscores divided byfer from seeing large paper gains turn into lossesthe number ofwhen the trend changes. The stop locks in a profit.scores.If you feel you’re going to be stopped out,close out the trade. When the stock drops and avoice inside whispers, “I’m about to be stopped out,” then don’t wait.Sell immediately at the higher price and save yourself some money.Wishing and hoping will not change the direction of the stock. I know.I’ve tried.
The BasicsThe longer you trade, the more likely you are to develop trading habits,some good and some bad. Bad trading habits are like termites: If you seeone coming out of a hole in the wall, then you have a serious problem.
8
TRADING PSYCHOLOGY
By knowing ahead of time what to expect, you can head off the development of bad habits.Let’s brush up on the basics. No system is perfect, including chartpatterns. Let’s say that you expect your trades to work 80% of the timebut the trading system you’ve just bought or invented works just half thetime. Your expectations do not match reality and you are destined forfailure and disappointment. In fact, many traders will tell you that theirwin/loss ratio ranges between 40% and 60%.Jake nudged me. “What’s your win/loss ratio?”“Forty-nine percent, but that’s over a lifetime. It’s been higher in recent years. What’s yours?”“Don’t know, but my total cholesterol is 198.” He laughed and hisdimple made its requisite appearance.Here are some tips.Match your expectations to reality. A woman e-mailed me sayingthat she wanted to move from being an entrepreneur of a successful business to trading securities. She had dabbled in the market for years withsome success and wanted to do it full time. She wanted to pull $2,000 aweek out of the market, or 100 grand in the first year. That’s certainlypossible if you believe some book titles, but the odds of it happening areagainst you. Be excited if you’re profitable the first year.Select good tools, a winning system. To be a successful trader, youneed two things: a winning system and the ability to follow it. It doesn’tmatter whether the system is a mechanical one where you just buy andsell when it tells you to, or a discretionary one where you decide whetherthe signal is worth trading. If it’s a winning system, following it willmake you money.Follow the system. I read of a trader that marketed his trading system. After the system had a winning year, he polled the people thatbought his system and found that just 5% were still using it. Think aboutthat the next time you consider paying big bucks for a trading system.Keep costs low. If you think that trading losses are more importantthan commissions, then you may have a problem. Like commissions,losses are just the cost of doing business. It’s like the retailer that has apile of wool sweaters going into summer. He’s going to have to sell his inventory for a loss. The question is will he do better next time? Will hetake the time to study the market and learn from his mistakes?Do research; learn from mistakes. “I remember when I bought1,000 shares of JLG Industries for 14.60 per share,” Jake said. “Then, the
Curing Negative Thoughts
9
company released earnings that were better than expected and the stockclimbed 15% in one session, topping out at 16.54. At the peak, on paper, I made almost $2,000.”“Did you sell?”“Yup. But first I did research.” The stock was in the process of makingan inverted dead-cat bounce that I discuss in Chapter 8 (see Figure 8.5). “Ifound that 46% of the stocks made a higher high the next day after a largegain, and that was the highest high in the coming month. But two dayslater, the stock closed higher—Murphy’s Law.” He shrugged his shoulders,palms pointed toward heaven.“You traded the probabilities,” I said. “That’s always the smartmove. Besides, you made money.”
Curing Negative ThoughtsClose your eyes and listen to the sounds around you. In my dining room,as I write this, I can hear the refrigerator running. I have a fan on thecounter blowing cool air in the summer heat. The grandfather clock inthe far corner is ticking loudly; every 15 minutes it tolls. The cardinal inthe bushes outside my window has a distinctive high-pitched chirp thattells his mate where he is and that he’s still alive. The bearings in mywindmill are no longer smooth; as the propeller spins, it rivals the grandfather clock in its ticking.Focus on the positive. Just by thinking about it, I can shift my focus from sound to sound, emphasizing one and diminishing others. Whynot do the same with your thoughts? Instead of dwelling on how thetrade that you are about to make will lose money, visualize a winningtrade. Think of how you will feel watching the stock double in price. Focus on what you want to happen. Visualize how great you’ll feel with abig winner and how awful you’ll feel if you miss the opportunity.Be patient. Positive thoughts bolster your confidence and help remove barriers that may color your perception of the markets. Instead ofhesitating getting into a trade, you will jump right in. Don’t expect changesovernight. This technique takes at least three weeks before you will see adifference. That is how long it takes your subconscious to accept it.When my dad died, my mom had trouble coping. She had a confidence problem. I told her to repeat the phrase “I can do it” several timesa day. After three weeks, her confidence returned, and she was able tomove on with life. You can do the same with your trading by visualizing
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TRADING PSYCHOLOGY
what you want to happen and by focusing on the positive aspects of eachtrade. Practice it every day.
The Comfort ZoneFearful about placing a trade because you might lose money? Gettingnervous that an upward price trend is topping out? These are warningsignals that you are moving out of your comfort zone. Everyone wants tostay in their comfort zone and let the profits tumble in without having tomake trading decisions. Successful traders tell you that they push thecomfort zone, trying to expand it so every trade feels good. Learn to pushthe envelope. Make earning millions feel as comfortable as when youwere making thousands. Make earning thousands as comfortable aswhen you earned hundreds.Remember when you first started driving, how you gripped thesteering wheel, how you dutifully checked each mirror every 15 seconds?Now, the radio blares, a cell phone covers your ear, and you don’t eventhink about keeping the car centered in the lane. Driving has becomerote, just as trading should be.Ignore profits. I have noticed that once profits move into four figures, I get nervous about protecting them. I move out of the comfortzone. Instead of letting the profits grow, I micromanage the trade andsoon sell.How did I fix the cutting-profits-short problem? Let me give you anexample. I bought Lam Research at the bottom of a rounding turn on theweekly scale. That pattern will take months to complete. Because I’m looking for price to return to the left lip high, I can ignore the daily fluctuationsand watch for a significant trend change. Focusing on a longer-term trade(the weekly scale) is one way of fixing the selling-too-soon problem.Focus on price behavior. Another tip is to concentrate not on howlarge the profits are, but on price action. If I don’t see that I’ve made$2,000, I won’t be inclined to sell. I can focus on how the stock is behaving, not on some artificial need to lock in a gain. I have tamed the comfort zone.Get used to making too much money. A related problem is beinga trading saboteur. A trader begins to sabotage his trades once he reachesa certain income level. He (or she) may feel that he doesn’t deserve toearn that much money. Perhaps his parents held multiple jobs and
The Sell Signal
11
worked long hours to achieve success. He feels that he doesn’t work ashard as they did and shouldn’t earn as much money. Everyone has a comfort zone for the income that they create and going outside that zone cancause problems.Recognize that you have a problem if you feel uneasy about yourtrading, have a stagnant income level, or have an inability to stick to a trading plan despite the knowledge that doing so would boost your income.Next, visualize what you want to happen with your trades. Seeyourself placing trades without worrying about the outcome, living withan income that is higher than you have experienced, placing trades ontime and at the correct price. Whatever the problem you have identified,see yourself overcoming it without stress or worry.Fish or cut bait? Trade to make money. Have you heard of thetrader who spends months refining a trading system? Instead of using itto trade, he continues tweaking it. He enjoys tuning the system, addingbells and whistles to the extent that he has forgotten the point of the exercise: to make money using the system. Locked inside of the comfortzone, he is unwilling to bust out and play the game.Another trader perceives himself as a successful trader. He takesprofits early. Instead of aggressively moving into a trade, he hesitates. Ifhe doesn’t trade, he can maintain his winning image by not losing.There was a point in my trading career when I would log a chartpattern into the system so that each time I looked at the stock, the pattern appeared. Sometimes I would identify a pattern too late to trade andother times I would find it well ahead of the breakout. But I didn’t tradethe pattern. I just watched it form and watched price take off.I did two things to fix this. First, I programmed my computer torecognize chart patterns before the breakout. That way, I can analyzeprice behavior and plan the trade. Second, when I get a buy signal, Idon’t ask if I should trade the stock. I ask what is preventing me fromtaking a position. The number of trades I have made has grown substantially and so have the profits.
The Sell SignalNot long after meeting Jake, price broke out downward from a symmetrical triangle in Questar Corporation. Then it closed there. That was thesell signal. The next day, I sold for a $300 loss. Two days after I sold, the
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TRADING PSYCHOLOGY
stock started to recover. Price shot out the top of the triangle, moved15% higher in about a week, and continued climbing.I wondered if Jake’s bad luck was starting to rub off on me. Then Istarted laughing. This was the perfect busted trade—when price movesdown a small amount before shooting out the other side of the pattern.Did I sell too soon? If I held on longer, the trade would have worked outjust as I expected, but I know from experience that this was a fluke.When price breaks out downward, sell immediately and don’t look back.There are other chart patterns begging for your attention like abandonedpuppies in an animal shelter.What would have happened if I decided to hold on? By ignoring asell signal and having a winning trade, I would be reinforcing negativebehavior. I would question each sell signal and my losses would grow instep with trading anxiety.Obey the signals. Obey your trading signals and don’t let badhabits form. If you do make a mistake, don’t dwell on it; just vow to dobetter next time. Close your eyes and visualize making the same trade,but this time obeying the signals.Big losses usually come from small ones. “I watch a loss grow untilI can’t take it anymore,” Jake said. “Then I sell two