Trading on the bullish neck line pattern

This section gives an example of the bullish neck line working well to signal a trend that continues to the upside as the bulls push back and hold prices near the close of the first day of the pattern when the bears try to make a push.

Figure 7-29 is a chart of Amgen, Inc., one of the world's largest biotech companies. It trades under the symbol AMGN. The bullish neck line appears during a small pullback during a longer term uptrend. It's slightly in neck, almost to the point that it may not qualify as a bullish signal. However, a trader that takes this as a buy signal and places a stop at any appropriate level would be handsomely rewarded with a continuation of the longer term uptrend. In this case, the potential stop levels would be the low of the setup day or the low of the signal day. I'm always placing stops very close to the entry point, so I probably would've chosen the low of the signal day, or the higher of the two choices.

Figure 7-28:

The bullish neck line (on neck and in neck).

Figure 7-29:

The bullish neck line working well on a chart of AMGN.

Figure 7-29:

The bullish neck line working well on a chart of AMGN.

Bullish neck line fails to signal a trend continuation

I hate to end the chapter on a down note, but I need to show you what it looks like when the bullish neck line pattern fails. Figure 7-30 is a chart of the U.S. Treasury bond futures. A bullish neck line appears near the top of this bullish move. There's only one day where the bulls are happy for making a move based on this signal, and then the tide turns quickly. The only positive I can say about this scenario is that it happened quickly, so you can move on to the next trade without a long and painful failure. And any stop level you picked would've been taken out by that ugly black bar.

That's it for the bullish double-stick patterns for now. In later chapters they come back, teamed up with technical indicators that may signal it's time for a reversal or that a strong trend is in place.

Figure 7-30:

The bullish neck line failing on a chart of the U.S. Treasury bond futures.

Figure 7-30:

The bullish neck line failing on a chart of the U.S. Treasury bond futures.

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