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PatternDNA Pattern of the Week: GGIEJEB

Apr. 01, 2011 12:21 PM ETRDC, MSFT
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Pattern of the Week was pulled from a reaction low in Microsoft's (MSFT) chart.

This seven day pattern starts with three bearish days, then three bullish days - mixed with a catchall day on the recovery.

Match No. of Patterns 1-day
% Win
% Win
% Win
Average Return
Per Trade (> 5 day)
Weakest 242 46 50 51 4.4
Weak 187 45 50 53 4.2
Neutral 128 42 51 55 2.8
Strong 55 41 47 63 3.3
Strongest 30 50 47 67 4.0

Unusually, for a Pattern selected from a reaction low it wasn't particularly bullish. As the stringency of the Pattern match increased, the probability for a higher close on day 1 dropped (with the exception of the Strongest Match). 

Day 5 performance was particularly interesting. A higher probability of a winning position on day 5 was countered by the Average Return Per Trade data which didn't correspond to higher returns (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%). This was because the win percentage on the longer time frame didn't increase beyond the initial 58% and the average loss per trade got worse as the Match level increased.

For those looking to milk a trade from this Pattern (perhaps buying on the open of day 2?) there were 115 stocks matching at Neutral. This dropped to 19 at the Strongest setting.

One of these stocks was Rowan Companies (RDC).

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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