Summertime and the Living is Easy

I have the worst case of spring fever ever known to man both physically in all of its manifestations and mentally and spiritually. Consequently it is taking just about every ounce of effort I can muster to post anything - even though I love it so.

That said here is an education in a chart. Listen and learn.


As normal I haven't a clue what this company does or how well they do it - all I see is blips on a screen. Here is what the blips from the past told me - on 3/07 a BOB completed. The blowoff in this instance was so obvious that only a moron could have missed it. Then the traders in this stock kind of swapped shares back and forth for awhile (and yes after the fact we can call that a "base" because it is so obvious) but more important it never went below the low of the second BOB bar. It took about 8 days to break out of the "base" and once that breakout occurred it was full steam ahead for a few weeks.

On 4/24 you got the kiss of death - the "cathedral of dead money" - a gap up away from the EMA 4 that it had been riding and a failure to advance. Sell, Sell, Sell, Sell as my BFF Jimmy Crack Corn Pone would scream. And don't buy back until it breaks 30.60 decisively (that was me - not Jimmy). It didn't. Instead it hit a slide and now look at it. Once more "consolidating" or "basing" or whatever you want to call it (I prefer "not trending" because that is descriptive and actually means something) and there is a good possibility that it is poising for another upward move. Especially since it printed another BOB on 5/14.

I say you could buy it now with a stop just below 25.20 or wait for it to break above 26.10 and take a shot there. Either way it is an impressive chart and might even return a couple of bucks before its next alarming drop.

Of course if it breaks below 25.20 you may want to ignore it and go on to something else.

QT Code for BOB and Cross Over

A new reader asked for some code so here it is - once more I make no representations of this information - you use it at your own risk. I provide no guarantees - this is NOT an invitation to speculate in the stock market.

BOB

If bar low[1] < bar low[2] AND volume[1] > volume[2] AND bar open[1] >= bar close[1] AND bar open[2] >= bar close[2] AND bar low >= bar low[1] AND bar close > bar open AND ema(8) < ema(21) set color to “choice”


Cross Over 1 (for signal on the cross over bar)

If bar open < ema(21) AND bar open < ema(8) AND bar open < ema(4) AND bar close > ema(4) AND bar close > ema(8) AND bar close > ema(21) AND bar close > bar open AND bar close[4] < ema(21) set color to “choice”

Cross Over 2 (for signal on the bar after the cross over bar)

If bar open[1] < ema(21) AND bar open[1] < ema(8) AND bar open[1] < ema(4) AND bar close[1] > ema(4) AND bar close[1] > ema(8) AND bar close[1] > ema(21) AND bar close[1] > bar open[1] AND bar close[4] < ema(21) set color to “choice”

I use two cross over indicators - one on the bar and one after the bar. You don't have to do that.

You do have to select your own colors however. That's easy enough.

And, yes, there are differences between this version of cross over and the one I use on the daily charts. Most notably the moving average requirements are missing - I don't always play stocks that are below the EMA(90) and neither should you. I just prefer to filter for them because they have a lot of room to run.

Re-Testing BOB

We've been discussing BOB a lot on this site and on Bullish Jim's and Jim has even provided some modifications which we've adopted.

At any rate every so often I re-test my filters against the most recent period and compare them to the previous period tested. This is done to ensure that I’m using the most efficient filters in my toolbox for the current market conditions. Here are the results of that re-testing for the stable of BOB’s we have managed to collect. As you will see and what I often find is that last month's darling is this month's dog.


From a reward/risk standpoint BOB v32x with 1.89 is far and away the best filter for use in the current time period. Here is that code.

show stocks where close is between 15 and 35
and average volume(90) > 500000
and close 2 days ago < ema(8) 2 days ago
and close 1 day ago < open 1 day ago
and close 1 day ago is less than 1% < open 1 day ago
and close 2 days ago is less than .5% < open 2 days ago
and low 1 day ago < low 2 days ago
and volume 1 day ago is more than 20% > volume 2 days ago
and close > open
and low > low 1 day ago
and close 2 days ago < ema(8)
and close 2 days ago < open 2 days ago

You should also note in your trading notebook that a change of date can cause filter results to vary significantly - the important thing to take away from that is if you are using some ready-made screen provided by one or another of the various sites - are you sure it is still working?

You see as much as we want to believe that CANSLIM or the "way of the turtle" or even that "Thursday's have the highest percentage of gap fills" are the solutions to all of our problems because learned books have been written about them - the fact is - nothing works all the time.

As the Gipper said - Trust - but verify.

BOB - We Have A Leader In The Clubhouse

I won't say "winner" because that would imply that the contest is over and done and nothing more can change and that it is finished. It will never be finished - the quest is never ending - but we do have a modification to BOB that I'm going to adapt.

Bullish Jim discovered it and you will have to read about that here and I suggest you read Jim's BLog frequently. There are two kinds of trading BLogs out there - those written by people who already know it all and wouldn't change a thing if their lives depended on it and those by people who actively seek change because they know growth only comes with change. Jim's is that kind of BLog - his is one of the good ones.

Anyway, long story short - Jim suggested that we constrain the first two candles to have a limited open to closing range. He did some tests and found some good results and I've followed up and my results are in this post.

I took my original BOB filter ("v1x")

show stocks where close is between 15 and 35
and average volume(90) > 500000
and ema(8) < ema(21)
and close 2 days ago < ema(8)
and close 2 days ago < open 2 days ago
and close 1 day ago < open 1 day ago
and low 1 day ago < low 2 days ago
and volume 1 day ago is more than 20% > volume 2 days ago
and close > open
and low > low 1 day ago

and made a change to it that I called "v31". ("v2" and mods are long gone).

and close 1 day ago is less than 1% < open 1 day ago

I then tested that version - we'll get to the results presently. Then I made a mod to "v31" named "v31x" -

and close 1 day ago is less than 1.5% < open 1 day ago

Followed by another test. Then I made an additional change (which is the change that Jim proposed) and I called this "v32" -

and close 1 day ago is less than 1% < open 1 day ago
and close 2 days ago is less than 1% < open 2 days ago

And tested that version. This was followed by one more change that I named "v32x" -

and close 1 day ago is less than 1% < open 1 day ago
and close 2 days ago is less than .5% < open 2 days ago

Notice that the difference is that the red bar two days back is constrained tighter than the red bar 1 day back. I tried it the other way around and achieved good win percentage but bad ROI. This way seems to work much better.

Here are the results -


And what now?

The tradeoff, of course, is that there is a variance in number of stocks selected as the filter becomes more constrained - here is how that looks -



You see that as the constraints become tighter you get a better return on the investment but the numbers of stocks selected goes way down. This is a dilemma - what to do, what to do?

Well here is what I'm going to do - I'm going to use every version and I'm going to access them daily in reverse order - "v32x" through "v1x" in turn and the first time I get a selection - that is going to be my BOB selection of the day.

Consequently I know that the risk is increasing as I progress through the filter set but we encounter risk all the time in this business. And the way we handle risk? Tighten up the stop.

Thank you Jim you are the Leader in the Clubhouse in the race to find the "better BOB".

CORRECTED:

And for any new readers - I use stockfetcher.com as my test bed. There may be better ones out there but this one is reasonably priced, allows me absolute freedom to write any strange method I can come up with and are really, really, really fast when responding to your plea for help via email.

Some Mods To BOB

When I first began this BLog I did it with one purpose in mind - to share my ideas regarding filters with the general public in the hopes that it would stimulate others to begin thinking about these things and to start looking at new ways of looking at the market.

I think I'm succeeding. Recently I've had several comments directed at possible modifications to the basic BOB and I listen to everything and try as much as I can possibly get to given a limited amount of time and an imagination that is always running wide open.

Anyway the mods proposed were BOB for close above the EMA(90) only and that the volume on the third candle be higher than the volume on the second. So I tested each of these propositions. True to my nature (contrarian always) I tested both above and below EMA(90) and volume higher than 1 day ago and also lower than 1 day ago. I also re-checked the original BOB. The test period was consistent for each test.

The results (drum roll please) ---


I don't make this stuff up - While there is something to be said for each of the modifications in either win percentage or ROI only the original BOB excels in both.

Keep 'em coming guys - sooner or later someone will find the ultimate BOB modification - I just know it.

The Blow-Off Bottom or BOB

I like to do a post on the BOB about once a quarter so that new readers won't have to search through the posts (I'm bad at organization) looking for the details.

I'd like to say that I "invented" the blow-off bottom (BOB) but that would be totally inaccurate - BOB was always there - all I did was find a particular formation and then describe some rules that could be coded into filtering software and then gave it a name. BOB, therefore, is not so much an invention as it is an observation and since I'm the first (that I know of) to chronicle it - I guess I'll take credit for it.



The rules are simple and the only rules that you can't change are the fact that the second bar's low is lower than the first bar's low and the third bar's low is higher than the second bar's low and the second bar's volume is greater than the first bar's volume. Other than that everything is optional.

I use the first two bars of the BOB to set-up potential day trades (trying to catch the third bar) and that is frequently profitable.

Believe

According to a very prolific and very profane Blogger we are to -

Try buying stuff you can believe in, instead of playing with lines, dots and silly numbers.

OK let's examine that for a minute. We have earnings season coming up and of the x number of stocks out there with earnings - most will "beat by a penny" and then they will go on to estimate their earnings for the next quarter also to the penny. And we are expected to believe that crap and buy those stocks that have the best "story" as long as we have an "idea" that they are going to do well in the future. Are you hosing me?

So I'm supposed to believe in bull snot accounting methods that (based on my advanced degree in business) I could find flaws in at any time - instead of believing in BOB? Or to put it another way - am I to believe what my engineering trained eyes are telling me about the stock (price and volume) or IBM when they say they "made their estimates plus a penny"?

That's extremely difficult when I know full well that most international company profits for the past oh I don't know how many years have been based primarily on foreign exchange rates. If you move enough money around you can make the books say anything you want - and there are no end of accountants out there who are too stupid or too lazy to tell the difference.

I don't think so - I think I'll stick with the lines, dots and silly numbers that make up a BOB - that, at least, is based on hard facts.

Do Not Sell AAPL

Because of this post unless you are personally convinced that the end is near.

If you are in a swing trade based on the dummy spot on 2/28 I believe that the stock signaled the end of the trade on 3/27. If my calculator is correct that’s about a $14 gain or about a 17% appreciation and it’s probably a good time to cash in and take the profits down.


However if you are in AAPL since it was just a seed you have a different problem – sell or do not sell. Let’s say you got in two years ago at 33. Within 8 months or so it hit 86 and then, using the weekly charts which long term holders should be watching, it printed a suspicious looking dual candle that might have been a tweezer top if they didn’t have 2 cents difference between them. Well I accept a “cents” variance on the weekly charts as being nearly the same as a real tweezer and that tells me a very crisp story. This stock is going down.


In the next two and a half months AAPL retraced 50% (fibbonacci number). You can see the retrace at point “a”. But as it happens many times the stock recovers about half of its retrace and then turns south again. (This is what Bollinger termed the “head fake” – you see it all the time). This time the stock retraced to the 62% level and at that point it culminated in a BOB. (I round .618 to 62%).

Now once again here is the story of BOB – pay attention. People who sold at the “tweezer top” and reacquired at the 50% retrace are pretty much stuck in the stock down to the BOB. This is because when the stock turned around and went up at the 50% level they marked that as a support. So when the stock turned around again and went back to the 50% level they weren’t concerned – it is only after it dropped through that level that the concern began because now they were enduring losses. That little white candle in the third week of June gave them some hope and then it failed again and finally they reached the end of their rope. This is the point where they are going to sell out, take their losses, and quit the stock for good. And that is why the volume is higher on the second candle of the BOB formation than on the first – capitulation selling by the retail trade. The pro’s all know that a 62% retrace, while not common is common enough not to worry about – the retail trade panics and dumps out at any price. The pro’s gap it up again in the next week and load up enough shares extra to sell to the retail trade they know can’t resist buying AAPL.

And sure enough – the retail trade seeing the stock turn around again the following week starts buying again. These are probably the same folks who sold it not a week or two ago and were never going to buy it again. This pattern is the same on all time frames. Every stock has a core constituency – a group of buyers who will stick with it forever no matter how the professionals abuse them using the very object they love.

But let’s complete the story of AAPL – or at least bring it up to date.


This is the latest year of AAPL. Once again there was a close-to tweezer top (20 cents variance). That signaled a 47-dollar gain from the BOB and if that wasn’t enough I don’t know when you greedy-guts will be satisfied. Since then AAPL has gone down a little and up a little and literally nowhere at all.

If AAPL does start going down I wouldn’t panic – I’d just sell once it passed 90. I’d reacquire on the 50% retrace and, worst case, buy some more on the 62% retrace.

Process Improvement

I continue to try to improve my processes. I learned that as a practicing systems engineer - no process can stand the test of time – there are always improvements that can be made. The problem is fining them.

Consequently I frequently make changes to my bread and butter filters to see what if anything can be done to make them more productive or more efficient where productivity is measured as win rate and efficiency is measured as ROI.

This morning I subjected BOB to several new approaches to see what, if anything, would happen if …

The if in this case was to see if adding a constraint regarding close being above or below a long-term moving average would improve BOB in any way whatsoever.

I made five test cases –

1. the Close is below EMA140
2. the Close is below MA200
3. the Close is above EMA140
4. the Close is above MA200
5. Original BOB

The results were interesting to say the least –


BOB the original outperformed the other test cases in a striking manner. But more importantly was this – the second place finisher was Close below MA200. In other words stocks that are considered to be taboo by the high priced stock selection site do better than the ones that are above MA200 – which they say is the only place to buy stocks.

At first I thought that was because they concentrate on the long term and I look at short term only. So I pulled the statistics on 1, 4, 10, 20 and 30-day net for a comparison.


And while BOB closing over EMA140 and MA200 is not bad at the 30-day level – only one beats original BOB and that is a close above EMA140.

So for now I'll stick with Original BOB and continue trying to improve it.

I Don't Rely on Technical Analysis

While it may appear that I do the fact is I rely on price analysis - I consider TA too slow for my objectives.

I discovered the rules for BOB by looking at charts that I generated using traditional TA such as Rate of Change, TRIX, RSI(14), MACD, Moving Average crossovers and the like and I was always wondering why I was missing half to two thirds of the move. In other words the move was happening without my noticing it until the traditional TA methods caught up. It was then that I had the most amazing thought of my entire life - traditional TA signaled the end of the move rather than the beginning.

In other words there was a class of buyer out there who were picking stocks based not on fundamentals and not on TA but on price/volume action. They were loading up and as soon as the retail trade, using traditional methods noticed the move, the original buyers were selling off to the retail trade and the move was on its way to being finished.

Using my analytical abilities coupled with a good memory I began to see certain patterns at the origin of the move - one of these was BOB and another was the dummy spot which is also termed Narrow Range 7 (NR7) or Narrow Range 3 (NR3) and in traditional Japanese candlestick parlance is called the morning star. NR7 and NR3 can be found anywhere and a lot of traders like to use them in the context of what I call the return to 4 trade. They like finding an NR7 or NR3 at the end of the return - it gives them a high confidence in the pattern. But the morning star is only found at the bottom of a decline.

Here is an example of a move that could have been caught off the morning star formation - this one had two in case you didn't notice the first one.



The traditional trader waits for the MA crossover and depending on the MA being used such as an EMA over the 200 or the far more traditional MA50 over the 200 - the move is already well underway by the time the retail trade catches up with it.

When I do use TA I try to use it in an non-traditional manner - for example an RSI(2) below 2 is as non-traditional as you can get. And the probability is that it won't stay there for long.

Here's another example of a trade that can be taken relying only on price action-


If you look at the third week in July you will see the third candle of the all powerful BOB - see - you don't need TA to get into great trades over a long term.

RATE - Watch It

Notable Calls is out this morning with an article on RATE and as is my custom I always look at a stock's chart on several time frames whenever I read about it on Notable. So I pulled up RATE and what I saw was yet another illustration of my many points and I wanted to share it with you.


In the previous post I spoke about dull days and two moves and RATE proves th epoint with a move down and a move up. Interesting enough the move up was off a BOB (red circle) that included a tweezer bottom (arrow) - I like these kinds no matter where they appear on the chart but the fact that it was a bounce off the pivot point just adds to the excitement.

Watch for BOB, watch for the tweezer and keep an eye on the pivot points.

Needless to say I was out playing golf when all of this activity was taking place - but, who knows - today is another day.

Read Notable Calls every day - if you don't you are just pretending.

Keep An Eye On The General Market

I found DEI on the BOB set-up filter Sunday Night and had I been around on Monday I could have played it.



First there is the BOB at 10:30 and even though the previous two candles don't appear to fit the software is set-up to output a BOB when one is found and that's what it did here.

If that wasn't enough then the candle at 10:15 being the second bounce on S1 would have informed your trade. In other words you could have taken this as an S1 trade because two candles had already tried to pierce S1 and had failed. As it turned out 4 candles attempted and failed - so the candle at 11:00 would have said to you "I'm going up - buy me."

If that failed then the crossover at 11:30 might have given one a clue that this was a good buy.

For an exit - we have the DOJI just before R1 followed by a spinner that touched R1 - that's your clue to take the profit and run.

If that wasn't enough then you could have blindly bought DEI based on QQQQ action. In other words seeing it bouncing along S1 at 10:15 you can be fairly confident that it is going up. Then, a quick glance at your QQQQ chart would convince you that the market is turning.



When you trade - keep your eye on the general market for excellent signals of what to do next. And try not to trade against the market - it seldom works. Of course - sometimes the market continues and your trade collapses - also be ready to read the topping signals.

Using BOB as a Day Trade Starter

When I began day trading one of the more difficult problems to solve was finding stocks to trade. I used gap-up and gap-down screens right after market open and these work well but sometimes some of the best trades are neither gap up or gap down.

So I think that that I have solved that problem for good by using the BOB set-up filter to find potential day trades. And had I been at my station Friday instead of beating a white ball around I would have had a beauty – IN.

The BOB set-up filter finds the first two candles of the set-up and then relies on you to find the third candle.

Here is how IN looked on Thursday with the BOB set-up – you can see how the set-up converted to a full BOB on Friday – it opened and went up – i.e. the low of the day Friday was above the low of Thursday. And that is key and critical to a BOB set-up.


The 15-minute chart looked like this so if you didn’t want to take the crossover entry off the BOB set-up you could have taken one of the returns to 4.


Here is how those looked with the pivot points in place. I used the extended pivot points to illustrate this trade.


This chart also has a couple of other interesting features – one is the dummy spot on Thursday coupled with the RSI(2) < 2 and the other, not annotated, is the last three 15-minute candles on Thursday have a BOB, an RSI(2) < 2 and a tweezer bottom all in the same three candle set-up. I never recommend starting a day trade overnight on something like that but it would have lent credence to the next day’s action. And as soon as you saw the crossover you could have taken the trade with confidence.

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.

Buy Late Sell Early

Joseph comes with a comment -

The saying is novices buy openings and pros buy closes.

Let's agree that this is true.

Now if this be true doesn't this fly in the face of the opening b/o group? Instead of looking for the high after 15' or 30' I believe given that the first statement is true to gauge one's opening b/o strategy on the 3:30 range and as long as it closes higher hold into the next days opening.

And I agree - in fact long time followers here know that I have made some nice gains and some nice losses using the overnight express. Last summer that's about the only way I would trade - buy late and sell early. This past week you could have made some serious coin on these two -





And, in fact I did make a good week on NFI all by itself. But here is the rub - finding the right stocks is sometimes easy and sometimes difficult. If it were always easy that's all that I would do - buy overnight and sell early the next day.

So how do you find the right stock? - you need a stock that closes well above its low of the day. LEND is an excellent example - the last 45 minutes suggest that it is going up the next day. A buy there would have net a very quick buck and a half (depending on how long you wanted to hold it - you could have made close to 3 if you held till 1 P.M.) But would you have bought it again at 3:30? Hard to say, hard to say.

Same issue with NFI - it gapped down and then rose through the day on Wednesday. A purchase at 3:45 nets about 90 cents to a buck on Thursday - but do you buy again at 3:45 on Thursday? I don't know - I don't see any reason why I would have.

Maybe I would have bought LEND off this chart on Thursday -



But that's a BOB. So maybe if you buy a gap-up BOB you solve the problem.



Here is AHM another subprime mortgage company and another gap-up BOB on Thursday. It jumped on Friday but then came back - so you would sell off in the first 15 minutes if you see it falling.



I think this idea deserves a little more thought and a little more investigation. If a gap-up BOB generally results in a gap-up the next day then that would be a good way to play the overnight trade.

I'll take a look and see what obtains. Stay tuned.

Having Trouble?

Get rid of the distractions. And I'm not talking about the spouse and the kids - I'm taking about the chart itself.

Here's what you do. Put up about 10 charts and it doesn't matter what they are or what companies they are just 15-minute charts of companies that you would trade. The charts should have nothing on them except candlesticks, no moving averages or other wingdings. In the lower windows ensure you can see volume and the RSI(2) plot. Then watch the charts. What are you watching for? - an Enhanced BOB. If you see this take the trade - the Enhanced BOB is -

A 3-bar set-up
Bar 1 - Red bar
Bar 2 - Red bar with a lower low than the previous bar and higher volume than the previous bar
Bar 3 - Green bar with a higher low than the previous bar
AND (mandatory)
- the RSI(2) is less than 5 and it is associated with 1 of the 3 bars in the set-up.

Put your stop below the low of the 2nd bar.

If you see these things you take the trade. And if you don't see these things? Don't take a trade.


After you take the trade add pivot points to the chart and let the pivot points dictate your exit (or end of day)


But what if I sit here all day and I never see a trade develop? Oh well - there's always tomorrow.

That's it - one set-up, one time scale, one exit objective. No distractions.

Update - Remember a BOB being used on minute-based charts is confined to a single day - I've never run it across day boundaries.

ATR - Potent Tool

I know - I get hold of an idea and I don't want to let it go but I was playing around this morning with a couple of filters and I had a thought on how to improve my Blow-Off Bottom set-up filter.

That filter as you probably remember only outputs stocks that meet the first two-thirds of the BOB set-up and it's up to you to watch for the third third to develop and perhaps use that to day trade (or start a new, longer-term relationship).

Anyway I added a constraint that said - and ATR(10) is less than ATR(10) 2 days ago and I back tested the modification.

The results are interesting enough on the surface -

Original BOB Set-up: 58% Win rate, 27.74% ROI
Modified BOB Set-up: 58% Win rate, 66.76% ROI

Apparently the ATR makes a difference and I'm going to leave it in - but this is the newsworthy part - when I looked at the net change over time here is what I found.

Original BOB Set-up: 4 day change = .34%, 30 day change 1.51%
Modified BOB Set-up: 4 day change = .80%, 30 day change 5.76%

That is amazing. Over double on the 4 day and nearly 4 times on the 30 day.

What this says, at least to me, is that an ATR that is high and then begins to decline is potent tool for the trader's tool box.

As always I tested the counter proposition just as a sanity check and here are the results from when I required the ATR to be increasing over the ATR of 2 days ago.

Win% = 54%, ROI = -6.28%, net change over 4 days = -.05%, over 30 days 1.44%.

That clinches the deal as far as I'm concerned - a decreasing ATR (= decreasing volatility) is better for your trading account than an increasing ATR (= increasing volatility).

Some months ago I wrote a post that provided an anecdotal indicator that when trying to choose between two stocks for a day trade and only having enough bullets or desire to trade one that you should take the one with the higher ATR. This is why. This tool will help you on all time frames. And maybe even if you do have enough to cover both you should put is all in on the one with the higher ATR.

That's your choice, of course - not an invitation to speculate in the Wall Street Casino.

BOB and BOT

I found a good example of a Blow-off Bottom followed weeks later by a Blow-off Top. I'm using a weekly chart to show how the BOB (and BOT) can be found from minutes to months. Once more the rules are simple -

Blow-off Bottom - two red candles where the low of the second candle is lower than the low of the first. The volume of the second candle is greater than the volume of the first. These are followed by a third candle (green/white) where the third candle's low is higher than that of the second. At least one candle of the first two should close below the EMA 8 as a minimum (less than EMA 4 is best). See the circle in the chart below. (For purposes of full disclosure - the third candle in this sequence is also a cross over).



Blow-off Top - two white/green candles where the high of the second candle is higher than the high of the first one. The volume of the second candle in the sequence is less than the volume of the first candle. The third candle is red and the high of that candle is lower than the high of the second candle. At least on candle of the first two should close above the EMA 8 as a minimum (greater than EMA 4 is best). See the rectangle in the chart above.

Now - when you see a blow-off top you should probably do one or both of two things - first - end any long trades you have in place, second - sell the stock short.

This is not an invitation to speculate - don't be fooled by randomness - we all know that there is no such thing as a pattern that repeats itself so consistently as to earn a silly name such as Blow-Off Bottom or BOB - don't we? And something even sillier like a "cross over pattern" couldn't possibly exist - could it?

Another BOB Example

I never get tired of this set-up - I see it many times every day across any number of time periods. Here it is on the daily charts with REGN. I've annotated a couple of spots - first the basic set-up is minimum of two days down with increasing volume on the second day. This example has the added feature of having some significant volume which just adds to the probability of a happy ending. Then the third candle is up with the low of the day being higher than the low of the previous day.



That's all there is to it. If you use the BOB method you can make the buy anywhere at "a" or above (recommended - not mandatory) and set your stop at "b" or below (suggested - not mandatory).

Any number of software filtering packages that allow you to "roll your own" will enable you to find good old BOB - I use stockfetcher.com.

Of course if you are still using the prepackaged filters at MSN money dot coma you won't find BOB but to each his own.