CHARTING
We See Them Often, But What Do They Mean?
Making Cents Of
Throwbacks and Pullbacks
by Thomas Bulkowski
What are they and how can we use them? Find out what they are and
how they perform.
When I started investing more than 20 years
ago, I thought technical analysis was nothing more than mysterious squiggles
on a chart. Now, I am a chart pattern trader who's not afraid to dig for
answers. While completing work on my latest book, Trading Classic Chart
Patterns, I uncovered some intriguing performance tips for stock investors
and chart pattern traders. This article discusses those tips for throwbacks
and pullbacks.
BACKGROUND AND IDENTIFICATION TIPS
What are throwbacks and pullbacks? Figure 1 shows an example of a throwback
after an upward breakout from an ascending triangle. A throwback occurs
when prices quickly return to the breakout price. After the throwback completes
its journey, prices usually continue climbing.
Figure 1: Throwback. A throwback completes within 30 days of
the upward breakout and shows white space between the breakout and ascending
triangle boundary.
Here are three rules to identify throwbacks:
1. Prices must return to, or come close to, the breakout price or trendline.
Prices can drop below the breakout price or pierce a trendline boundary,
but ignore anything that doesn't come close. (Use your best judgment to
define close.)
2. Prices must complete the throwback within 30 days. I usually adhere
to this rule, especially when I am collecting statistics, but you may choose
your own guideline; 30 days is arbitrary. Anything beyond this I attribute
to normal price behavior.
3. Prices must leave white space between the curling action of the throwback
and the chart pattern. I use this rule to eliminate those patterns in which
prices slide along the chart pattern instead of looping around. This isn't
baseball: sliders aren't allowed.
...Continued in the June 2002 issue of Technical Analysis of STOCKS
& COMMODITIES
Excerpted from an article originally published in the June 2002 issue
of Technical Analysis of STOCKS & COMMODITIES magazine. All rights
reserved. © Copyright 2002, Technical Analysis, Inc.
