Wednesday, April 27, 2011

PatternDNA of the Week: HGGYZ

This week's pattern comes from Progressive (PGR). The sequence is built off a mild bearish day, followed by two bearish days, then two neutral days.

The pattern performed strongest on the second day after the pattern, although at the Strong Match there was a low number of matches.

Match No. of
% Win
% Win
% Win
Average Return
Per Trade (> 5 day)
Weakest 165 55 60 57 5.4
Weak 62 59 66 60 4.7
Neutral 33 58 77 70 6.0
Strong 8 40 90 70 4.1
Strongest 0 n/a n/a n/a n/a

Despite the strong outlook over the second and fifth day of the pattern, the picture over the longer term was more mixed. The Average Return Per Trade (Average Return Per Trade assumes an initial stop of 10%, raised to 5% off the price reached on a 15% gain. Ultimate Profit Target of 25%) didn't exhibit a consistent return on increasing Match. Over the basket of 18 U.S. stocks the Average Return ranged from 4.1% to 6.0%.

However, despite the inconsistent Average Return Per Trade the win percentage remained consistently high, ranging from 75-82%. So while a handful of outsized losses brought down the Average Return it's a regular winner.

Running a Market Scan at a Neutral Match returned 12 matches. One of the 12 stocks was Mattel (MAT), a stock which recently enjoyed a breakout. Is this pattern a good omen going forward?

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