Tuesday, March 20, 2007

BOB - A Reprise

Bullish Jim mentioned that he made a little yesterday during lunch time playing QID and so I went to take a look. And indeed QID was in the BOB formation. That is annotated on this chart. And I’m repeating the methodology here both for any new readers and as an update for some of my old readers who may have forgotten the pattern.

Now that is the only way a BOB is defined. If you look at the three candles just before the three I used to describe it you can see a similar but not quite the same pattern. That is not a BOB - only similar - and you can see that the stock continued to go down. Only the real BOB has a 68% probability of a rebound. Of course this BOB had a bit more than that because of the fact that it had descended through the second support level.

That lends a whole new amount of probability to the possibility of a rebound (probability and possibility in the same sentence - what a weasel worder).

Then the third piece of goodness associated with this particular BOB was the fact that the RSI(2) was less than 2 and had been for awhile. That is indicated by the purple color of the candles. I set up Quote Tracker to color them purple when the RSI(2) was less than 2.

So here is a BOB that is supported by other pieces of technical analysis and if you saw it and didn't trade it you lost an amazing opportunity to make some cash.

One other point I'd like to make - BOB isn't TA - it is a "trader's observation" and there is a difference. Technical analysis is based on price manipulations in some manner such as RSI or Pivot Points or Moving Averages of whatever kind - the "BOB" on the other hand uses price in the raw as it is happening now. BOB then is more up to date than is most TA. When BOB is coupled with TA it becomes extremely powerful.


Anonymous said...

Hi Marlyn,

Excellent post. Have you ever looked at probability % when BOB is formed under S2?


Bullish Jim said...

Great post, Marlyn. I am a big fan of BOBs, obviously. You know what I like best about them? You're buying so near a current bottom that you can set a pretty tight stop. I sometimes set it too tight but I generally find that any drop back toward the bottom of the second candle is a very strong clue that the setup isn't going to work that time. I'd be curious where you'd have put your stop on that QID BOB.

Marlyn Trades said...

Mike - no I don't know the exact probability of BOB + S2 but I'd have to say better than the 60-65% that BOB carries normally. Couple that with RSI2 < 2 and it has to be in the 80-90 range if not better.

Jim - I'd have put my stop right where you put yours. BOB is either the bottom or it is not - there just isn't any other place to put it.


Good old bob.