for complex head-and-shoulders tops is very low (8%)but slightly above the rate recorded for regular head-and-shoulders tops. Pullbacks have also moved up a notch and now appear in nearly two out of threeformations.The average decline at 27% is on the high side for a bearish formation.However, the most likely decline is just about evenly distributed from 10% to30% (when viewed in 5% increments).Two interesting findings deal with necklines and shoulder height. Whenthe neckline, which is a trendline joining the lowest minor lows between theshoulders, slopes downward, the performance improves slightly from a declineof 26% to 27%. Likewise, when the outermost shoulder is higher on the leftthan the corresponding one on the right, the performance improves from 27%to 28%. In both cases, the differences may not be statistically significant(meaning they could be due to chance).
TourThere are two basic varieties of complex head-and-shoulder tops, as illustratedin Figures 21.1 and 21.2. In Figure 21.1, the formation appears after anAlcan Aluminium (Aluminum, NYSE, AL)
Aug 95
Figure 21.1 Complex head-and-shoulders top with dual heads. The stair-steppattern of a measured move up forms the left shoulder and head. The twin peakstake on the appearance of a horn top, and the resulting move down resemblesanother measured move, albeit stuttered.
Tour
307
extended bull run that begins in November 1992 at a low price of 15'/4. Thestock climbs to a high of 365/8 by mid-July 1995, then melts back to 285/8 bymid-October, forming a base for die head and shoulders. The stock rebounds,creating the left shoulder. It pauses at die 31-32 level by moving sideways, dienspikes upward again in a sort of measured move thrust. The measured move upfinishes shy of its target price by just over a dollar before die stock beginsretracing its gain. The peak serves as die first head.After moving down a bit, die stock pushes upward and tags the old high,then drops. Another head appears. Once prices slip from the head, they findsupport at the first shoulder trough and rebound. The right shoulder takesshape. After declining through the neckline, formed by a line joining the twoshoulder troughs, prices quickly pull back and move higher. They turn away atthe 32 resistance level and continue down in a straight-line run to 283/8.Computing a line using linear regression of the daily volume over die formation (outermost shoulder to shoulder) indicates volume recedes. Although itis difficult to tell from die chart in Figure 21.1, about two out of every threecomplex head-and-shoulders tops show a receding volume trend.If you believe in the classic definition of a double top, you might considerthe twin heads a candidate for that formation. However, several flaws eliminatethis pattern as a candidate for a double top. First, the two peaks are too closetogether on the time line. For a classic double top, the peaks should be at leasta month apart (my definition of a double top allows peaks to be closertogether). Also, the recession between the two peaks should take prices downby 15% to 20%. Figure 21.1 shows a decline of just 5% from the highest peak,well short of the goal.I could further complicate the comparison by pointing out that the twoheads look like a horn top, but we are discussing complex head-and-shoulderformations. Let me say that you find such behavior quite often in technicalanalysis: Each formation can be viewed from several different perspectives.Some analysts might see a complex head-and-shoulders formation while otherssee a pair of measured moves—one the skewed mirror image of the other—while yet others might see a horn top. The results are the same so there is noneed for concern: All point to a bearish situation.Figure 21.2 shows a different type of complex head-and-shoulders top.Multiple shoulders with only one head is the more common of the two varieties. Pictured is the type of technical pattern that rips die heart out of noviceinvestors. Imagine someone buying diis stock in October, just before the risebegins. Prices quickly move from a low of about 13 to a high of 277/s, a doubling of the stock price in a little over 3 months. On the way up, our noviceinvestor is thinking that picking stocks is an easy game; his selections are turning to gold.The first shoulder forms as prices touch 277/8, then retreat to a low of 22.The decline undoubtedly upset our investor pal. He probably told himself thathe would sell the stock once it returned to its old high.
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Head-and-Shoulders Tops, Complex
Identification Guidelines
309
Identification GuidelinesHow can our novice investor recognize the bearish reversal? Table 21.1 outlines some identification tips of a complex head-and-shoulders top.Consider Figure 21.3, another example of a multiple shoulder chart pattern. After a decline from a head-and-shoulders formation just off the left sideof the chart, prices decline until reaching bottom at the start of July. Then theyrise up, haltingly, and form a new head-and-shoulders formation: a complextop. If you ignore the labels for a moment, the inner price action looks like arounding top. This smooth price rollover is common for complex head-andshoulder formations. Of course, the flat head shape for a multiple shoulder pattern (Figure 21.2) is also typical.You can divide Figure 21.3 into a pure head-and-shoulders formation byignoring the outer shoulders. For single-head formations, this is the easiest
Figure 21.2
Typical complex head-and-shoulders reversal. Multiple shoulders
with a single head in a rather flat formation round out the pattern. The volume pattern emphasizes that volume is usually higher on the left side of the formation thanthe right.
way to correctly identify a complex head-and-shoulders top. First locate a regular head-and-shoulders pattern then expand your view to include additionalshoulders. In this example, the head rises above the surrounding shoulders.The two shoulders are usually equidistant, or nearly so, from the head. Theprice level of the left and right shoulders is very nearly the same. Thus, the
Table 21.1Identification Characteristics of Complex Head-and-Shoulders Tops
In early January, prices zoom upward and make a smaller peak at 27'/2.Since the rise is so steep, our intrepid investor thinks, why sell the stock when itis going to go higher? He is right. Prices retrace a bit then move higher and formthe head at a price of 28s/s. Once the head completes, things start to go wrong
for our buddy. He is swayed by glowing predictions on the Internet of the
Characteristic
Discussion
Shape
A head-and-shoulders top with multiple shoulders or, morerarely, two heads. The head is higher than the shoulders butgenerally not by very much.
Symmetry
The tendency for the shoulders to mirror themselves about thehead is strong. The price level of the shoulders and timedistance from the shoulder to head is about the same on eitherside of the head. The shoulders also appear to be the sameshape: Narrow or wide shoulders on the left mirror those onthe right.
Volume
Usually higher on the left side than on the right and is usuallyseen when comparing the shoulders on the left withcorresponding ones on the right. Overall, the volume trendrecedes.
Neckline
Connects the lowest left shoulder trough with the lowest rightshoulder trough. When the line extends and intersects prices,that signals a breakout.
Downside breakout
When prices close below the neckline, a breakout occurs. Forthose cases with a steep, down-sloping neckline, use thelowest trough price as the breakout point.
stock moving up to 3 5 or 40 within a year.
At die top, prices round over and start down. They stop midway betweenthe troughs of the two left shoulders before making one final attempt at a newhigh. Up to this point, there are several opportunities to sell the stock at a goodprice. Did our novice investor take them? Probably not. Always optimistic thatprices will ultimately break out and reach higher ground, he does not see thebudding complex head-and-shoulders formation for what it is: a warning.When prices drop below the neckline, our novice investor has just 2 short
days before things really get going. By the third day things are looking grim asthe stock closes at 23, near the low for the day. Prices quickly unravel and ultimately reach a low of 15, just a few dollars above the purchase price. That iswhen our investor throws in the towel and sells the stock. Of course, this isnear the low and the stock ultimately climbs to 30 a year later.
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Head-and-Shoulders Tops, Complex
side of the formation as compared to the rigshoulders formations and occurs about twoThe neckline joins the lows of the lowsame way as a normal head-and-shoulders toa downside breakout occurs and prices mova breakout and can remain high for severalthe decline.
Focus on Failures
Complex head-and-shoulders patterns suffrare. Figure 21.4 shows the first type. I defibelow the neckline, or in the case of steep nshoulder trough. Figure 21.4 shows prices
once on May 8 but closing above it. FromFigure 21.3 A more rounded appearing complex head-and-shoulders top. Leftshoulder 1 and right shoulder 1 could be considered part of the inner head-andshoulders formation. The inner head-and-shoulders looks like a rounding top formation.
above the highest head and an upside breakThe formation itself is well formed. It
level and two shoulders also near the same
the formation looks good, too, as the shouldVolume appears heavier on the left shouldeexpect. Only during the decline from the rig
symmetry of a complex head-and-shoulders top is more pronounced than aregular head-and-shoulders formation.
In a regular head-and-shoulders formation, one shoulder may be higherin price than the other or one shoulder will be much further away from thehead—a rather extended shoulder. That is usually not the case with the complex variety. Symmetry is paramount and a key identification element.Moving to the outer shoulders, they also are equidistant from the headand are very nearly at the same price level as well. Continuing the symmetry
example, the two peaks labeled left shoulder 1 and right shoulder 1 appear tobe shoulders of the same formation, although further away than the innergrouping.If you consider the inner quad of shoulders as part of the head, then whatremains is a large, regular head-and-shoulders formation. This is denotedby left shoulder 1, right shoulder 1, and the large, rounded head (composed of
five minor highs). Even the neckline supports this example as prices touchthe line several times before dropping through it in a 1-day decline of aboutfour points.If you could zoom in on the volume pattern, you would see it is marginally heavier on the left side of the formation than on the right, at least for the
formation bounded by the inner (higher) neckline. High volume on the left
Figure 21.4 A complex head-and-shoulders fbelow the neckline before moving above the fobreakout.
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Head-and-Shoulders Tops, Complex
Statistics
volume rise. In short, there is no real indication that this formation will fail tocontinue moving down, but it does.Figure 21.5 shows a slightly different picture. The multiple-shoulder formation appears less balanced. The shoulders are somewhat less even and notequidistant from the head. However, it is a complex head-and-shoulders topwith a downside breakout. Unfortunately, prices fail to continue moving down.The stock suffers a 1-day drop of $2, but then rises in an ascending broadening wedge pattern. The wedge is a bearish pattern that breaks out downwardbut it too fails to descend very far. Within a few months, the stock is again
making new highs.Returning to the complex head-and-shoulders pattern, I regard the formation as a failure because prices fail to move down by more than 5% after diebreakout. A 5% decline should take prices to 49s/g, but the actual decline is wellabove that.Are there any clues to the failure of this formation? The volume patternis flat. It shows no tendency to diminish over time. A receding volume patternis not a hard-and-fast rule so I do not consider this pattern to be that unusual.To answer the question, I see no real clues as to why the formation does not
continue moving down. A closer examination of the fundamentals on the company may provide some clues.
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StatisticsAs alarming as the two figures may appear (Figures 21.4 and 21.5), one has tobalance failures with the realization that they do not occur very often. Table21.2 shows that only 11 out of 141 formations fail to move down by more than5%. That gives a 92% success rate. In the vast majority of cases I studied, theformation acts as a trend reversal. Once prices break out downward, they continue down by more than 5%. In their quest to reach the ultimate low, pricesdecline by an average of 27%.The most likely decline is somewhat harder than usual to determine. Figure 21.6 shows a frequency distribution of declines with a 10% intervalbetween bins. The figure shows the most likely decline is 20%. Subdividing theinterval into 5% bins shows the frequency for many bins is within a few hits of
die others. The 5% chart suggests the declines can range from 10% to 30%,almost equally.The Trading Tactics section discusses the measure rule in detail, but itinvolves computing the formation height and subtracting it from the breakout
value. The measure rule provides a minimum price target that hits 67% of thetime. This is lower than the 80% I like to see, so one should consider the possibility of falling shy of die target before placing a trade.
Table 21.2General Statistics for Complex Head-and-Shoulder TopsMinnesota Mining and Manufacturing (Chemical (Diversified), NYSE, MMM)
May 94
Dec
Jan 95
Figure 21.5 Another failure of a complex head-and-shoulders top. This one failsto decline more than 5% below the breakout point. An ascending broadeningwedge takes shape in late November and December.
Description
Statistic
Number of formations in 500 stocks from1991 to 1996
141
Reversal or consolidation
15 consolidations, 126 reversals
Failure rate
11 or 8%
Average decline of successful formations
27%
Most likely decline
20%
Of those succeeding, number meeting orexceeding price target (measure rule)
87 or 67%
Average formation length
3 months (83 days)
Number of successful formations showingdownward volume trend
89 or 63%
Average performance of formations withdown-sloping necklines versus up-slopingnecklines
27% versus 26%
Average performance of formations with higherleft shoulder (farthest on left versus fartheston right) versus higher right shoulder
28% versus 27%
Note: The complex head-and-shoulders pattern takes longer to form and declines furtherthan regular head-and-shoulder formations.
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Head-and-Shoulders Tops, Complex
Table 21.3Breakout Statistics for Complex He
30
40
5060Percentage Decline
Figure 21.6 Frequency distribution of declines for complex head-and-shouiderstops. The most likely decline is 20%.
The formation is about 3 weeks longer (83 days total) than a regular headand-shoulders formation. This should come as no surprise since it requiresmore time for another set of shoulders or heads to appear.Almost two-thirds (63%) of the formations have a downward volumetrend. A line formed using linear regression on the volume data makes thedetermination. Most of the time the line slopes downward and indicates volume is receding.Some analysts suggest that a down-sloping neckline implies an especiallybearish situation. I found this to be true, but die difference (with an averagedecline of 27% versus 26%) may not be statistically significant. In the calculation, I used the lowest of the two shoulder troughs to determine the slope ofthe neckline.In a similar manner, high left shoulders, when compared to their rightcounterparts, suggest a more bearish outlook. Again, I found this to be truewith formations that have higher left shoulders suffering a decline averaging28% versus 27%. For this study, I used the outermost shoulders as the benchmark. Since the two numbers are so close to each other, the difference may notbe meaningful.
Table 21.3 shows breakout statistics. There are only three upside breakouts, with the remainder being downward (138, or 98%). Once a downwardbreakout occurs, the formations must continue moving down by at least 5% orelse they are 5% failures. Eight formations (6%) fall into this category.
Description
Stat
Upside breakout
3 or
Downside breakout
138
Downside breakout but failure
8 or
Fullbacks
88 o
Average time to pullback completion
10 d
For successful formations, days toultimate low
3.5
Percentage of breakouts occurring near12-month price low (L), center (C), orhigh (H)Percentage loss for each 12-monthlookback period
L22%
Volume for breakout day and next 5 dayscompared with day before breakout
1 75
16%
Note: Nearly all the formations (98%) have downside
Fullbacks, which are prices that break
neckline within 30 days, are quite numerousgesting that if you miss the breakout, wait. A pto place a short sale at a higher price. Of cou
then look elsewhere for a more promising si
you will buy into a situation that may soon reThe average time for the pullback to reMany of the formations have pullbacks occurrout. The average is skewed upward by severa(but less than a month) before returning to th
On average, it takes 3 '/2 months to reach
bine this statistic with those in Table 21.2, ware wide, suffer a more severe decline, and tlow. In diat regard, the complex head-and-serful dian a regular head-and-shoulders rever
Most of the formations occur in die ce(48%) of die yearly price range. Only 6% of dyearly low. The results make sense in that die peffectively elevating die breakout point outdie percentage loss for each of die formations
see diat die largest declines occur in the cenformations in that category decline by an avera
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Head-and-Shoulders Tops, Complex
Trading Tactics
^^
Table 21.4Trading Tactics for Complex Head-and-Shoulders Tops
formations with breakouts in the top third of the yearly price range, with anaverage decline of 26%.
Volume is unusually high for several days after a breakout. You can seethe trend in Table 21.3. Volume starts out high, 75% above the prior day (or175% of the total volume), but recedes to near the average by the followingweek.
Trading Tactic
Explanation
Measure rule
Compute the formation height by subtracting theneckline value from the highest high reached in thehead, measured vertically. Subtract the result from thebreakout price where prices pierce the neckline. Theresult is the minimum target price. If the formation lookslike a mountain suddenly appearing out of a flat base,prices may return to the base. See Figures 21.2 and 21.5.
Do not wait for confirmation
If you can determine that a complex head-andshoulders top formation is completing, consider actingimmediately. Place a short trade or sell any longcommitments. This formation rarely disappoints and thedecline is above average. Should prices rebound at theneckline, reestablish your position.
Short stop
Look for resistance areas about the neckline troughs.Place a stop just above the higher shoulder trough. Theshoulder tops and head also represent good locationsfor stop-loss orders.
Watch for pullback
Place a short sale or add to the position during apullback. Wait for prices to begin falling again beforeplacing the trade as prices sometimes pull back andcontinue moving up.
Trading TacticsThe measure rule predicts the minimum expected decline. Look at Figure 21.7as an example of the measure rule outlined in Table 21.4. Compute the formation height by subtracting the difference between the highest high (315/g)
from the value of the neckline directly below the highest high (27). Subtractthe result (4s/g) from the breakout price (253/4), which is where declining pricespierce the neckline. Prices drop below the target price of 21 l/s in early March.
This is the conventional measuring rule and it is successful 67% of thetime. That is below the 80% success rate I like to see for measure rules. Theconventional method also has a flaw when the neckline slopes steeply. Undersuch circumstances, prices may never pierce the neckline and yet the stock istumbling. Fortunately, the neckline rarely slopes steeply in complex forma-
317
tions. However, if you do run across a formation with a plunging neckline, usethe lowest of the shoulder troughs as the breakout price. Compute the formation height in the normal manner, but subtract the height from the troughvalue to get a target price.
A slightly more conservative measure rule computes the formation heightfrom the highest high to the higher of the neckline troughs. Then subtract theresult from the higher of the neckline troughs and the result is the target price.This method results in 76% of the formations meeting the measure rule, whichis still short of the 80% I like to see.Using the chart pattern shown in Figure 21.7 as an example, the highesthigh is at 3 l5/g and the higher of the two neckline troughs is at point A, 27'/2(using the daily low price). This gives a formation height of 4'/s (315/s - 27l/i)and a target price of 233/s (or 27'/2 - 4'/s). Prices reach the target during thelarge 1-day decline on March 2.Figure 21.7 A complex head-and-shoulders top formation. For the measure rule,compute the difference between the highest high and the neckline, measured vertically, and subtract the result from the breakout price. A broadening top appearsfrom December through February and a dead-cat bounce follows.
If the head-and-shoulders formation does not occur after an extendedupward trend—the situation shown in Figure 21.1—then prices will probablydrop back to the low where the formation began. In Figure 21.1, the low justbefore prices start rising to the formation is about 28. That is the level towhich prices return after the breakout.
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Head-and-Shoulders Tops, Complex
At other times, the formation will suddenly shoot up from a base, thenjust as quickly return to the base. Figures 21.2 and 21.5 show examples of thissituation.Since the complex head-and-shoulders top is so reliable, once you are rareyou have a valid pattern, take advantage of it. If you own the stock, sell it. If youdo not own the stock, short it. For short positions, look for areas of strength—
resistance levels—and place a stop-loss order just above that level. Commonresistance levels are the shoulder troughs, shoulder tops, and head top. Shouldthe price rise above the highest high, immediately cover the short position asit is an upside breakout and likely to continue soaring.Be aware that prices sometimes break out downward, then regroup andrise above the neckline before plunging down again (see Figures 21.1 and 21.3).These extended pullbacks and regular pullbacks are good places to initiate ashort sale or add to a position.
The second rise was even shorter than th
Henry started selling immediately.The failure to sail across the formatening formation meant it was a partial risusually means one thing: A downside breaBy the time the stock pulled back upders (point B), Henry had sold his holdings
office for home, something on his computening pattern had changed into a complex
the two left shoulders balancing the two rcenter.
Henry discussed the new situation wibuddies, then decided to short the stock.term up trendline, he had a tidy sum sold
Two days later, prices tumbled. Theyand continued down. In less than a week,
Sample Trade
support, a plummet of 36%.
Henry runs a small hedge fund. He considered buying into the stock shown inFigure 21.7 but needed more bullish evidence. Two weeks later he got his signal. Prices pushed up through a long-term, down-sloping trendline in August1994. Other indicators he uses on a daily basis confirmed the buy signal, so hebought shares for his fund at an average price of about 17-4.As the stock climbed, he followed its progress and checked periodically onthe fundamentals. The ride up was not an easy one because the stock beganacting oddly from October through early December. At one point during thatperiod, it looked as if a broadening top was forming, but the price actionchanged enough that the formation fell apart.The stock bounced between 21 and 2 5 several times then pushed its wayto higher highs. Henry suspected the end was near, so he began taking a closerlook at the fundamentals. He was so engrossed with his research on the company that he failed to notice a pattern forming. Over drinks with his fund manager friends, he shared with them what he had dug up about the company. Thenews was not good."So that's why it's making a broadening top!" one remarked. Henry furrowed his brow and pictured the price action in his mind and there it was, abroadening top, just like his friend had said.The next day Henry pulled up the chart and looked at it more closely. Hesaw higher highs and lower lows (see the zoom out in Figure 21.7), characteristic of a broadening pattern. Coupled with his fundamental research on the
his notes and brushed up. He knew the s
Henry had studied the behavior of d
company, he knew it was nearing time to sell, but not yet. He wanted to sell at
the top, when prices tagged the top trendline.In early February, when prices attempted to reach the previous high, theyfell short, dipped down for a few days, and tried again (the two right shoulders).
within a week, then trend lower.True to form, prices moved up a bitrounded bounce he expected. In the comHenry quit complaining, but he watchedThe stock bottomed out at about 16 alooked as if the stock was building a baseso he covered half his short position.In late April, when prices jumped upremainder of his position. In the pub that e
smiles. He was feeling so good that he dec
22Horn Bottoms
I reviewed a number of criteria to imprcriterion responsible for the most improvlonger than most spikes over the prior yearage gain rises to 43 %.
Tour
Figure 22.1 shows what a horn bottom looksber 1993, prices plummet from a high of 503On the left side of the horn, prices have a laHigh volume makes the week appear like aattributes as a one-day reversal but over thesible trend change.The following week, prices close lowlow. Then, 1 week later, prices spike lower
week and just Vs below the prior close. The
ble price spike separated by 1 week marksprices move up and more than double fromhalf.
RESULTS SNAPSHOTAppearance
Two downward price spikes separated by a week onthe weekly chart
Reversal or consolidation
Long-term (over 6 months) bullish consolidation
Failure rate
11%
Average rise
37%, with most likely rise between 20% and 30%
Surprising finding
Abnormally long price spikes perform better.
See also
Double Bottoms, Pipes
Tandy Corporation (Retail (Special
I first discovered this formation while pondering a result from my study of
double bottoms. Double bottom formations with bottoms closer together perform better than those spaced widely apart. What would happen if you considered formations that have bottoms only a week or so apart? I tested the ideaand discovered that the formation performs well. The failure rate at 11 % iswell below the 20% maximum rate I allow for reliable formations.The average rise at 37% is below the usual 40% gains posted by otherbullish formations. Such large gains do not happen overnight. A frequencydistribution of the time it takes to reach the ultimate high shows most horn
9 3 D 9 4 F M
bottoms falling into the long-term category (taking over 6 months to reach theultimate high).
Figure 22.1 A good example of a horn bottoarated by a week, look like a steer's horn flipp
320
A
M
|
|
A
S
O
N
D
9
322
Horn Bottoms
Identification GuidelinesHow do you correctly identify horn bottoms? Table 22.1 shows identificationcharacteristics. In essence, the characteristics define the shape of an invertedhorn that is clearly distinguishable from the surrounding price action.Consider Figure 22.2 that shows two horn bottoms. What might strikeyou first about the left formation is its similarity to Figure 22.1. The stockshown in Figure 22.2 tumbles from a price of almost 25 in August 1991 to alow of just 61/2 at the right horn spike in less than 2 years. Then prices recoverand move higher.
Horns are visible on weekly charts. Although they appear on daily charts,weekly charts make selection easier. For the formation on the left in Figure22.2, the chart shows two long, downward price spikes separated by a week.The low of the center week stays well above either of the spike lows, emphasizing the inverted horn shape of the formation.Looking back over the months, you can see that there are no downwardspikes that come near the length of the horn spikes (as measured from the lowest low to the lower of the two adjacent weeks). The twin horns mark anunusual event, one that an investor should pay attention to.Table 22.1Identification Characteristics of Weekly Horn BottomsCharacteristic
Discussion
Weekly chart, downward spikes
Use the weekly chart and locate two downward pricespikes separated by a week. The two spikes should belonger than similar spikes over the prior year and bewell below the low of the center week. It should looklike an inverted horn. Abnormally long spikes result inbetter performance.
Small price variation
The price difference between the two lows of the
The price difference between the twoor less. Higher priced stocks can show largbasis, the differences are minimal). In Figutwo spikes is just $0.25 (for the left forma
For the left formation, the horn app
allowing clear visibility to the left of the fo
price outliers obscure the view. This is imstand alone and not be part of a congestionpoint of a downward price trend.
Price overlap is quite good for the f
nearly the same size but the left one shiftsThe formation shown on the right o
horn bottom looks like in an uptrend. Ther
duration, just as the horn bottoms out. The
from the surrounding price action and allo
The two spikes share the same low pr
lap (as the right spike almost completely o
that the separation of the horn low from ttional when compared with the pipe formJune. That is certainly true, but most of thetoms, not a jagged coastline.The volume trend on this formation iaverage volume. The left formation showhorns sport above average volume. The s
horn is small, usually 3/s or less, but can vary up to $1
or more for higher priced stocks.
Clear visibility
In a downtrend, the horn lows should be well belowthe surrounding lows, especially to the left of theformation for several weeks (or months). Usually,horns appear near the end of declines but alsohappen on retraces in uptrends (where visibility is lessclear