(2002.02.07, Close $38.75, “shooting star” reversal, 30º trend angle)

(2002.02.07, Close $23.15, “dark cloud” reversal, 30º trend angle)

William Dunnigan wrote a tiny but fascinating book in 1952 called Gains in Grains, which is included in this recent collection of his work. He writes persuasively about various price patterns that are useful to watch for, including the Test of Top (TOT) and Closing-Price Reversal (CPR).

You can see both of these patterns in the charts above; the short side looks good from here. (Victor Sperandeo also wrote a practical chapter in his 1991 book describing how to identify a change of trend.)

I used Dunnigan’s ideas when day trading off of ten minute charts, but the methods are applicable to any time frame (indeed, they are probably more reliable on longer time frames). I’m thinking about taking a little position in one or both of the stocks above to demonstrate how I would handle this kind of longer-term “position” trade.