The anti by Linda Raschke:
Here are the rules for the setup:
1. Use a seven-period %K stochastic (the "fast" line). If your program allows for
an adjustment of the smoothing of this parameter, default to four.
2. Use a 10-period %D stochastic (the "slow" line).
BUY SETUP (SELLS ARE REVERSED)
1. The slow line (%D, the dotted line in the examples on the following pages)
has established a definite upward-trend.
2. The fast line (%K, the solid line) has begun to rise along with the slow line. A
consolidation or retracement in price causes the fast line to pull towards the
slow line.
3. Enter when the price action causes the fast line to turn up once again in the
direction of the slow line (forming a hook).
TRIGGER
If you are anticipating this setup, there are two easy ways to enter that give you
quite a bit of extra edge.
1. When the %K and %D have formed opposing slopes for at least three days,
creating a tension between them, place a buy stop one tick above the previous
day's bar. (This will be to go long when %D has returned to a positive slope.)
If the buy stop is not hit, keep on trailing it down to the high of each previous
day's bar.
2. A trend line can also be drawn across the tops of the congestion or retracement
pattern. Sometimes this setup captures moves out of small "flags" or "drift"
patterns. Other times it captures beautiful moves out of setups that the eye
would not normally pick out on a price chart.
LINDA:
I have also entered many times after the "hook" in the fast line has occurred. This is
usually a strong enough pattern that it is OK to enter a bit late. The only word of
caution is that the average holding time is three to four days. If you get in after the
hook has already formed, be prepared to exit within two days.
INITIAL STOP
As with all swing patterns, once the market has turned, it should not look back. The
initial stop should be placed just below the bar of entry. It is better to get stopped
out and re-enter later than to risk too much on the initial trade. By studying the
examples and examining this pattern on your own charts, you will quickly see that
there is little risk of the good trades getting stopped out.
Once you are in a winning trade, look to exit on a buying or selling climax within
three to four bars. This is not a long-term trade, just a quick "Thank-you very
much!"
