What does this abbreviation mean? It stands for Back to Back Setup. I was first discovered by me when I was backtesting Gartleys. I have noticed one interesting thing. Sometimes gartleys appear very close to each other. One gartley’s AD may serve as another gartley’s XA. After that second 8 times of 10 I osbserved a huge movement going much further than my secondary targets. I called it DGS – double setup. But then I found the same formation while testing cyphers and bats. I also found that different patterns may be combined. The first is and the second is bat or and vice versa. So I changed the name of the setup and called it BBS.
Studying this phenomenon I came to a conclusion that these formations take place in consolidation periods. The consolidation being bordered by shows channels, flags, triangles and . So these huge movements were classic channels, flags, triangles or breakouts.
On the chart above presented one of these setups. I minimized it so you can see the flag itself. May be you’ll have some problems differentiating bats. In this case just maximize the chart pressing ‘+’ button.
As you can see price went lower than the second Bat’s X to retest the lower border of a flag and then went skyrocket. Make sure that your stops are not just below X but also below the border of a flag, triangle or formation. In these formations borders serve like magnets. So, if your stop is not beyond the border there’s a high probability that it’ll be triggered. On this particular chart 1,113XA, my regular Bat stop placement, was touched. Luckily, I already knew about this setup and placed stops beyond the lower border. To maximize my profits I adjust my targets from C-point retest to A-point retest keeping in mind that A-point is an opposite side of a channel. Although a in the direction of the overall trend has a high probability of success, I prefer to take profits at the border. Classic flag strategies presuppose taking profit measuring the flag’s staff. It’s done the same way as pattern traders look for D point. So you can maximize you profits even further. Trying to catch such big moves you are to protect what you have already earned. So, trailing stops to structure won’t be a bad idea. Test it to find the best way of maximizing profits.
Well, I think it’s all for today. Press like and subscribe if you want me to keep on posting this stuff.
If you are new to these series you are welcome to check previous editions:
Hope to see you next Wednesday.
P.S. Pattern traders, look close to this BBS: