The bullish thrusting lines and a trend that comes to an end

Figure 7-26 is a chart of the stock for Transocean, Inc., a company that builds large drilling machinery for extracting oil in deepwater environments. Not coincidentally, its symbol is RIG. (Looks to me that the symbol assignment was rigged.) I've highlighted the pattern forming at the beginning of an uptrend.

I love this example because the pattern occurs early in an uptrend, so a trader may feel that he hasn't completely missed the bull run by using this signal as an entry point. If he kicks himself for missing a buy at a lower price but still has some interest in getting in on a trade, this pattern may give him the confidence to step up to the plate and buy the stock.

Figure 7-25:

The bullish separating lines.

Figure 7-26:

The bullish separating lines on a chart of RIG.

Figure 7-26:

The bullish separating lines on a chart of RIG.

Conversely, Figure 7-27 is an example of the bullish separating lines showing up at the end of an uptrend. The stock charted is for The Home Depot, Inc. (HD), a store I seem to visit every weekend. If you bought HD based on the pattern in this figure popping up during an uptrend, you wouldn't have taken too bad of a loss. The stock doesn't change to a downtrend, but instead, it just starts to trade aimlessly in a nontrending fashion. Using a stop wouldn't have saved you massive amounts of cash, but it would've saved you the angst of trying to figure out if the trend was reversed or just flat.

You have a few options when it comes to determining failure for the bullish separating lines. You may choose the low or close of the setup day or the open or low of the signal day. It really depends on how aggressive you feel and how certain you want to be that the pattern's signal has failed.

In the case of the HD example in Figure 7-27, the day before failure would take out the signal day close while the following day (the day highlighted as a failure) would take out all the other options.

Figure 7-27:

The bullish separating lines failing on a chart of HD.

Figure 7-27:

The bullish separating lines failing on a chart of HD.

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