The “Best-Dressed” Chart Pattern
01/31/2012 12:00 am EST
Veteran trader Dave Landry talks about his preparation routine, what the bow-tie pattern is, and how it helps him find trading opportunities.
SPEAKER: My guest today is Dave Landry. We are talking about his overall philosophy. He has a lot of experience in the market and has been doing this for a long time. Dave, if you could kind of describe how you view the market and find good opportunities what would that be?
DAVE LANDRY: First, I would do is I would look at a lot of charts. I look at the indices. I look at 200 or 300 sectors every day and then most importantly, I look at about 2000 stocks. The first thing I do, it is a top down approach but I do it in a bottom up fashion, I look at all those stocks first and then I will say, “Wow, it looked like the market was pretty weak today.” Then I will look at an index like the Rusty, Russell 2000, and I will see that it was down and like okay well then that confirms what I am seeing internally. Just the opposite will happen sometimes. Sometimes an index will be up but internally the market was really ugly, so by looking at all those charts I get a really good feel for what really happened in the markets. If you do that day after day, you are going to see some trends developing and then you look for some setups to get long or short or whatever the case may be along the way.
SPEAKER: For a newer trader that may not be able to look at those charts and kind of see it after a while as you are able to, should they be using sort of scanning software and kind of whittle it down first. What do you think?
DAVE LANDRY: Well you could scan, but my biggest scan is I run a scan that gets me down to those 2000. I find if you scan too much, you might scan out some winners. Say I have a bowtie pattern, which is a three-day cross of a moving average, but sometimes I will have some really good bowties that are a four-day cross. If you are scanning just for those three days, you might miss the one that is a four day and out. I would caution people against scanning too much, but yes, I hear you, when you are just starting out sometimes it can be a little overwhelming and if you scan it down a little bit it is a little bit easier to learn. I would recommend just look at as many charts, as much time as you have look at a lot of charts. Usually when I speak I will ask if there is any musicians in the crowd, somebody usually raises their hand, I ask them how do you get good and they say practice. If you want to get better as a chart reader and as a technician then look at a lot of charts every day.
SPEAKER: You mentioned the bowtie and you talked about moving averages. Can you talk about which moving averages you watch for that?
DAVE LANDRY: I look at a 10-day simple, a 20-day exponential and a 30-day exponential. Ten days simple because it gives me a true representation of price over the last two weeks, then the 20 and 30 exponential because they catch up the price a little faster. I look for those three to converge and spread out, it kind of looks like a bowtie, and those can be especially powerful coming off of major, major, major loads. Let’s say a stock goes down and it bottoms. We had some solar stocks earlier this year that went down, bottomed out for months, months and months, all time lows and then went up 300%, 400% or 500% from those lows. If all you did was look for those major transitions with something like a bowtie at low levels, then I think you would do very well. You brought up something earlier, which should somebody new to trading do? Well maybe just pick one pattern. Pick the bowties or pick what I call persistent pullbacks is where a stock tends to go up day after day after day, you look for that, pullback in that stock, just very simple patterns. Pick one pattern and get good at it. What amazes me if people will be unsuccessful with one pattern, but think they will be successful with fifteen. Get good at one thing, just one thing and then move on from there.
SPEAKER: Dave, thanks for your time.
DAVE LANDRY: Thank you so much.
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