Replies to post #6473 on MDA - Market Direction Analysis (MDA)

[augieboo]

STATS ON ASCENDING TRIANGLES (from Bulkowski)

Bulkowski studied 725 ascending triangle formations among 500 stocks in the period from 1991-1996. That was a bull market, so I think we should be careful trying to make direct comparisons to the current situation. With that said, here are his stats:

Failure Rates:
-- 32% prior to breakout
-- 2% post-breakout

Average Moves:
-- successful formations: 44% rise
-- failed formations: 21% drop

Bulkowski emphasizes the importance of waiting for a breakout before going long an ascending triangle.

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Augieboo says if you can't wait, use a mechanical stop!
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Price Projections:

1. Measure Rule: add height of formation to the breakout point (the horizontal top line in the current instance)

-- average rise via measure rule = 44%
-- percentage meeting measure rule target = 89%

2. Frequency Distribution

-- "most likely" rise = 20%

-- distribution as follows

 
 % Gain       Frequency % 
 ========================= 
 us to 10%    10% 
 20           22 
 30           17 
 40           12 
 50            7 
 60            4 
 70            4 
 80            3 
 90            3 
 >90          17 
 

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augiecomment: Clearly the 17% of formations which rise
greater than 90% are skewing the stats. Taking the average
of just the 20, 30, and 40% results gives me 28%, which I
think is a more realistic number to use for the sake of
safety.
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More Stats:

Premature Breakouts: 36%
B. says premature breakouts are indistinguishable from real breakouts and offer no clue as to the direction of the genuine breakout.

Throwbacks* 58%
Pullbacks** 49%

Average time to
-- throwback completion: 15 days
-- pullback completion: 13 days

Volume Trends:
-- 68% show downward trend from beginning of formation to just prior to the breakout
-- average volume for breakout day (BD) & next five (compared to 25 day moving average)
BD -- 130%
+1 -- 176%
+2 -- 151%
+3 -- 144%
+4 -- 128%
+5 -- 121%

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augiecomment: clearly we need to look for
a HIGH VOLUME breakout! Otherwise...
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Average Time to Ultimate High (for successful formations): 186 days

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Footnotes:

* Throwback: price breaks out in the correct direction then returns to the breakout trendline before resuming its movement (presumably in the correct direction).

** Pullback: price breaks out in the wrong direction but quickly returns to the formation