Big Mike's Trading Forum
 

Go Back   Big Mike's Trading Forum

> Trading Forums > Trading Journals


Notices
     

Pipe Bottoms
Started:December 30th, 2011 (01:52 PM) by DonStar Views / Replies:3,586 / 75
Last Reply:May 5th, 2012 (11:48 PM) Attachments:53

Welcome to Big Mike's Trading Forum.

Welcome, Guest!

This forum was established to help traders by openly sharing indicators, strategies, methods, trading journals and discussing the psychology of trading.

BMT is fundamentally different than most other trading forums:
  • We work extremely hard to keep things positive on our forums.
  • We do not tolerate rude behavior, trolling, or vendor advertising in posts.
  • We firmly believe in openness and encourage sharing. The holy grail is within you, it is not something tangible you can download.
  • We expect our members to participate and become a part of the community. Help yourself by helping others.


You'll need to register in order to view the content of the threads and start contributing to our community. It's free and simple, and we will never resell your private information.

-- Big Mike
     

Reply
 53  
 
Thread Tools Search this Thread

Pipe Bottoms

Old December 30th, 2011, 01:52 PM   #1 (permalink)
Elite Member
Dallas, TX
 
Trading Experience: Intermediate
Platform: ToS, TradeGuider, eSignal, AmiBroker
Broker/Data: TD Ameritrade/eSignal
Favorite Instrument: Stocks
 
DonStar's Avatar
 
Posts: 61 since Dec 2011
Thanks: 22 given, 39 received

Pipe Bottoms

Hi All: First, I want to wish everyone a Happy and prosperous 2012. I have been spending most of my time on BMT reading and observing. This journal will be my 1st attempt at getting involved. I appreciate that such a great forum exists and have nothing but hope for the year ahead of us.

I have been looking at Pipe Bottom formations and thought I would spend some time this topic. Hopefully others will have experience and/or thoughts about it.

Pipe Bottoms were popularized by Thomas Bulkowski and it is through his book "Encyclopedia of Chart Patterns" and his web site thepatternsite.com that I have gained what little knowledge I have about them.

Two adjacent downward price spikes compose the pipe bottom, and it looks like two parallel lines on the chart. A major drawback of this pattern is that Bulkowski suggests that you use weekly charts to identify and trade this pattern. Although pipes appear on daily charts, they do not perform as well as pipes on weekly charts (he says).

This week pipe bottom formations are forming on 5 stocks: ANN, GILD, LTD, LSI and PDCO.

As I move forward with this journal, I hope to follow these setups initially and others that follow. I am looking forward to learning and understanding more as I go along.

I have already noted something I think is very interesting on GILD. Although the recommendation is to use weekly charts, as I was looking at the daily chart on GILD there is a very nice daily pipe bottom (PB) that preceded the weekly PB. I don't know what this means, if anything, but I think it is worth a look.

I will get some charts posted as well as follow-up with rules and guidelines for this set up.

Attached Thumbnails
Pipe Bottoms-gild-w.png   Pipe Bottoms-gild-d.png  

Last edited by DonStar; December 30th, 2011 at 02:19 PM. Reason: added charts
Reply With Quote
     
The following 3 users say Thank You to DonStar for this post:
     

Old December 30th, 2011, 01:52 PM   #2 (permalink)
Quick Summary
Quick Summary Post

Quick Summary is created and edited by users like you... Add FAQ's, Links and other Relevant Information by clicking the edit button in the lower right hand corner of this message.

     

Old December 30th, 2011, 02:31 PM   #3 (permalink)
Elite Member
Dallas, TX
 
Trading Experience: Intermediate
Platform: ToS, TradeGuider, eSignal, AmiBroker
Broker/Data: TD Ameritrade/eSignal
Favorite Instrument: Stocks
 
DonStar's Avatar
 
Posts: 61 since Dec 2011
Thanks: 22 given, 39 received


Pipe Bottom Characteristics/Guidelines

Weekly Chart: The first guideline suggests that you use weekly charts. Although pipes appear on daily charts, they do not perform as well as pipes on weekly charts.

Two downward adjacent spikes: Two adjacent downward price spikes compose the pipe bottom, and it looks like two parallel lines on the chart.

Large spikes: The pipe spikes should appear as a large price drop and wide price range for 2 weeks in a row. The week before and after the pipe should have low prices near the top of the pipe. This characteristic makes the pipe stand out on the price chart as an easily recognizable formation. The spike decline should be unusual. The length should be well above the average downward spike length over the past year. It must appear as a large decline on the price chart, not just another 2-week blip in a sea of long downward price spikes.

Large overlap: The pipe has a large price overlap. As a selection guideline, you do not want to see a large left side and a short right side.

High volume: Volume for each pipe spike is usually above average but need not be. Pipes with above average left volume and below average right volume perform better than all other combinations. However, do not exclude a pipe simply because it does not obey the volume characteristics.

Obvious pipe: The pipe must be unusual enough to jump out of the price chart. Typically, pipes form at the end of a decline and mark a turning point. Less frequently, pipes act as a consolidation of the upward trend. They spike downward for 2 weeks, then prices continue rising.

Wait for confirmation: The twin bottom pattern confirms as a pipe bottom only when price closes above the highest high in the pattern. Do not invest in a pipe without confirmation.

Reply With Quote
     
The following 2 users say Thank You to DonStar for this post:
     

Old December 30th, 2011, 02:54 PM   #4 (permalink)
Elite Member
Dallas, TX
 
Trading Experience: Intermediate
Platform: ToS, TradeGuider, eSignal, AmiBroker
Broker/Data: TD Ameritrade/eSignal
Favorite Instrument: Stocks
 
DonStar's Avatar
 
Posts: 61 since Dec 2011
Thanks: 22 given, 39 received

On this weekly chart of ANN the Pipe Bottom bars don't look like they have long enough spikes. The stock is not in an established downtrend. And it does not look like price will confirm by closing above the highest high of the two pipes.

Attached Thumbnails
Pipe Bottoms-ann-w.png  
Reply With Quote
     

Old December 30th, 2011, 03:11 PM   #5 (permalink)
Elite Member
Northern Germany
 
Trading Experience: Intermediate
Platform: NT
Favorite Instrument: FDAX, CL
 
vvhg's Avatar
 
Posts: 1,583 since Mar 2011
Thanks: 1,016 given, 2,646 received

Current BMT User Poll

For you, trading is a...

 
Wouldn't the low about 20 bars back fit the description you gave quite well?

Vvhg

Hic Rhodos, hic salta.
Reply With Quote
     
The following user says Thank You to vvhg for this post:
     

Old December 30th, 2011, 04:09 PM   #6 (permalink)
Elite Member
Dallas, TX
 
Trading Experience: Intermediate
Platform: ToS, TradeGuider, eSignal, AmiBroker
Broker/Data: TD Ameritrade/eSignal
Favorite Instrument: Stocks
 
DonStar's Avatar
 
Posts: 61 since Dec 2011
Thanks: 22 given, 39 received

Yes vvhg. I agree with you. There are several previous potential setups on these charts when you look back at them.

I will use current setups as my starting point and move forward from here. Good observation though...

Attached Thumbnails
Pipe Bottoms-gild-w2.png  
Reply With Quote
     

Old December 30th, 2011, 04:45 PM   #7 (permalink)
Elite Member
Dallas, TX
 
Trading Experience: Intermediate
Platform: ToS, TradeGuider, eSignal, AmiBroker
Broker/Data: TD Ameritrade/eSignal
Favorite Instrument: Stocks
 
DonStar's Avatar
 
Posts: 61 since Dec 2011
Thanks: 22 given, 39 received

Out of the 5 patterns watched this week, 4 of them failed to confirm by closing higher than the highest high of the two spikes that make up the pipe bottom formation.

GILD did confirm by closing higher. So the next move is to buy GILD on the next trading day (usually Monday).

I want to look at strategies for entering the trade. Maybe use a smaller timeframe to select best entry.

The stop should be placed slightly below the low of the formation (pipe bottoms tend to act as support).

I also want to look at developing a scanning tool to mine potential setups.

More as this develops...

Attached Thumbnails
Pipe Bottoms-gild-w2.png  
Reply With Quote
     

Old January 6th, 2012, 09:55 PM   #8 (permalink)
Elite Member
Dallas, TX
 
Trading Experience: Intermediate
Platform: ToS, TradeGuider, eSignal, AmiBroker
Broker/Data: TD Ameritrade/eSignal
Favorite Instrument: Stocks
 
DonStar's Avatar
 
Posts: 61 since Dec 2011
Thanks: 22 given, 39 received

Okay, here is an update on the pipebottoms.

Of the 5 pipebottoms identified, only one confirmed it's pattern last Friday (GILD).

I put in a buy at market order to purchase 10 May Call options. This order filled at $2.89 for a purchase price of $2,890.00.

Today GILD closed at $4.20 for a one-week gain of 45.33%

See attached chart.

Attached Thumbnails
Pipe Bottoms-20120106_gild.png  
Reply With Quote
     

Old January 6th, 2012, 10:19 PM   #9 (permalink)
Elite Member
Dallas, TX
 
Trading Experience: Intermediate
Platform: ToS, TradeGuider, eSignal, AmiBroker
Broker/Data: TD Ameritrade/eSignal
Favorite Instrument: Stocks
 
DonStar's Avatar
 
Posts: 61 since Dec 2011
Thanks: 22 given, 39 received

Compute the height from the taller of the two spikes to the lower of the two (the AB distance).
[This number is 2.35]


Then multiply by the “percentage meeting price target (83%).”
[1.95]


Add the difference to the higher of the two (A) to get a price target, C.
[41.28]


Using this calculation we, we have met our target price. Today’s close was 42.78

Attached Thumbnails
Pipe Bottoms-20120106_pipe2.png  

Last edited by DonStar; January 6th, 2012 at 10:20 PM. Reason: Increase font
Reply With Quote
     

Old January 6th, 2012, 10:28 PM   #10 (permalink)
Market Wizard
Aurora, Il USA
 
Trading Experience: Advanced
Platform: TradeStation
Favorite Instrument: futures
 
kbit's Avatar
 
Posts: 5,237 since Nov 2010
Thanks: 2,687 given, 2,765 received
Forum Reputation: Legendary


Please register to view the post attachment(s), image(s), or screenshot(s) - it's simple and free.


I know I'm veering off course a little by not showing a weekly.
This is a ES tick chart with what I would call a pipe bottom....do you agree, additionally do you have any stats on success rates of lower time frames ?
just curious.
Kbit

Reply With Quote
     
The following user says Thank You to kbit for this post:
     


All times are GMT -4. The time now is 10:28 PM.

Powered by vBulletin®
Copyright ©2000 - 2014, Jelsoft Enterprises Ltd.
SEO by vBSEO ©2011, Crawlability, Inc.
Copyright © 2014 by Big Mike Trading. All information is for educational use only and is not investment advice.
There is a substantial risk of loss in trading commodity futures, stocks, options and foreign exchange products. Past performance is not indicative of future results.
 
no new posts

Page generated 2014-04-24 in 0.15 seconds with 20 queries on atlantis via your IP 54.204.64.152