Pimp My Trade

Long Tail Down Point and Figure Trading Strategy

Posted on March 9, 2009 by Adam

I was looking at stocks last night and a lot of stocks that have been holding up well over the last month look like they are about to complete reversal patterns. I find it hard to get bullish on those stocks despite the oversold conditions of the market, because I have a feeling they will play catch-up to the downside.

Instead, I am using a different strategy to try and find some bullish setups.

If you are unfamiliar with point and figure charting, you can watch my video tutorial. This strategy utilizes point and figure charts and the stockcharts.com stock screener.

If you scroll down to the bottom of the page on stockcharts, you wil see a P&F Patterns section. This has a whole selection of PNF patterns that are unique to the point and figure discipline. You can check them out when you get a chance, but today I wanted to focus on one pattern in particular: the Long Tail Down.

I find that this strategy works best with highly liquid stocks, so I usually only look at patterns listed on the NYSE and sort by volume, looking for stocks that trade at least 500,000 shares daily.

When you look at a PNF plot of a Long Tail Down, you will see a long column of O’s. I like to trade this pattern by waiting until the stock completes a 3-box reversal into a column of X’s. As soon as the 3-box reversal completes, I like to buy and scalp a few points out of the stock.

It’s a short-term strategy, suitable for either swing or day traders. Here’s a list of stocks I’m looking at right now to try this on:

(MET: 40.62 0.00%)
(GD: 59.49 0.00%)
(MIR: 10.32 0.00%)
(PTV: 32.23 0.00%)
(LLL: 68.77 0.00%)
(TEG: 49.36 0.00%)
(MHK: 46.47 0.00%)
(SNA: 44.25 0.00%)
(ALK: 45.32 0.00%)
(HE: 23.62 0.00%)
(TUP: 41.97 0.00%)
(ATK: 73.00 0.00%)