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Strategies & Market Trends : Point and Figure Charting
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To: Diana who wrote (18925)4/24/1999 1:04:00 AM
From: Smooth Drive  Read Replies (2) of 34808
 
Hello Diana,

>>IATV broke a triple bottom yesterday but did it in the last hour of trading and closed up some. This a.m. we have higher prices. I believe we are looking at a Bear Trap, but I am such a Piff Baby that I can't even crawl yet.<<

I always watch for Bull and Bear Traps as they can signal a great deal about a stock or index. CHARTCRAFT provides daily updates on Bull and Bear Traps and I have learned to appreciate how nice they work.

A Bull Trap occurs when a chart signals a triple top buy signal and the last column of X's doesn't go even one more box higher and then reverses down. A Bear Trap occurs when the chart signals a triple bottom sell signal and the last column of O's doesn't go even one more box lower and then reverses up.

A recent Bull Trap would be Bankatlantic Bancorp.

10          X
9.5 X   X   X O
9   X O X O X O
8.5 X O 1 O 4 O
8   X O X 2 X O
7.5 X C X 3 X
7   X O   O

If the breakout column had gone to 10.5 and then reversed, it would not qualify as a Bull Trap because it would have gone more than one box above the previous two columns of Xs. Michael Burke suggests that this action "Takes out the short sellers stoplosses as well as the traders with buy-stop orders."

It's also worth noting that Carroll Aby doesn't consider the Bull or Bear Traps complete until the reversal results in a buy or sell signal. In other words, the above graph's last column of O's would need to drop to 6.5 and create the double bottom sell signal before he would consider it as a true Bull Trap. Aby describes the mere reversal up or down as a Triple Top Failure or Triple Bottom Failure until they actually generate the requisite buy or sell signal.

A recent Bear Trap would be Unify Corp:

15.5 O
15   O
14.5 O     X
14   O X   X O X
13.5 O X O X O X
13   O X O X O X
12.5 O   O   O X
12           O

"When the triple bottom is broken, a number of stoplosses have been touched, a number of stoplosses have been touched of and the chances are good that a lot of short sales are executed on the downside breakout."

In conclusion, I too follow Chartcrafts method and refer to what I have depicted above as Bull and Bear Traps. But -- when a sell or buy signal is also generated, I refer to it as (for example) a "Bull Trap with a sell signal" and it makes that particular pattern that much stronger and often times sets a major new trend.

Regarding IATV, you can see on the chart that it did in fact go more than one box below the previous column of O's. In fact it went two additional boxes below the actual triple bottom sell signal before reversing up. It is not a Bear Trap.

Take care,

Eric

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