The figure of continuation of the Baskerville Dog trend - unsuccessful Head and shoulders
О The "Baskerville Dog" trend continuation pattern was first mentioned by financial markets legend Alexander Elder in his book "Fundamentals of Trading".
The figure is quite common and is, in fact, a failed Head & Shoulders trend reversal pattern. In the technical analysis of the market it is customary to consider the "Baskerville dog" as a trend continuation figure, although most market researchers do not include it in the list of classical trend continuation figures: flag, wedge, triangle, etc.
How is the "Hound of the Baskervilles" figure constructed on
As mentioned above, the figure of technical analysis "Baskerville's dog" is a failed figure of trend reversal "Head and shoulders". The "Head and shoulders" figure indicates the end of the upward trendand its reversal and, as a consequence, the opening of trades to sell.
The figure "Baskerville dog" appears when after the market demonstrates the absence of the expected classical reaction to the figure - that is, the penetration of the "neck line" of the figure "Head and shoulders" turns out to be false and, instead of decrease, the price continues to grow.
The name of the figure is not accidental. It was inspired by Arthur Conan Doyle's novel The Hound of the Baskervilles, in which the dog did not bark during the murder because the murderer was a family member. The absence of the expected reaction, that is, the barking of the dog, is what allowed Sherlock Holmes to solve the mysterious murder.
By analogy, the figure "Baskerville dog" is the absence of the expected "barking dog", that is, the price decrease after the appearance of the figure "Head and shoulders".
The figure "Baskerville Dog" is considered to be formed after the price overcomes the maximum of the figure "Head and Shoulders".
It should be noted that Alexander Elder gives the description of the pattern, but he does not speak about the specific preconditions of its occurrence. It might be supposed that the main factor for the "Hound of the Baskervilles" pattern formation are some fundamental events, and the technical sign of the pattern is the continuation of the uptrend, expressed in the overcoming of the maximum of the "Head and shoulders" pattern.
It should also be remembered that none of the Technical analysis figures does not imply 100% probability of its working out, so the figure "Head and shoulders" itself is a prerequisite for the "Baskerville Dog".
The use of the figure "Baskerville Dog" in trading on
The classic way to open a position using the "Head & Shoulders" figure implies the opening of a sell position after the "neck line" is broken.
If breakdown The pattern is considered to be formed only after the defining technical line is overcome. For this pattern the defining line is the maximum of the failed figure "Head and shoulders".
Accordingly, at the breakdown of the price of this level, the sell position open on the figure "Head and shoulders" should be closed and open a position in the direction of the current trend, that is, to buy.
Unfortunately, neither Elder nor other technical analysts give clear rules for setting targets when using the "Hound of the Baskervilles" figure in trading. However, there should not be much difficulty here, because the "Hound of the Baskervilles" is a trend continuation figure, respectively, the goals and orders stop loss can be calculated as in normal trend trading.
It is also worth mentioning a curious effect inherent in the "Hound of the Baskervilles" pattern. It consists in the fact that the price going in the direction opposite to the expected by the TA pattern (in our case - by "Head & Shoulders") has an increased potential.
The "Hound of the Baskervilles" pattern can continue not only the uptrend, but also the downtrend, arising from the figure "Inverted head and shoulders" with similar principles of formation.
The "Baskerville Dog" trend continuation pattern is still one of the most controversial technical analysis patterns on the market. Nevertheless, despite the disputes of theorists, the figure exists and works well enough, giving the trader an opportunity to avoid losses, having opened a position on the trend in time.
“….Для этого паттерна определяющей линией является максимум неудавшейся фигуры «Голова и плечи»…..”
т.е. это максимум так “головы” ?
“….Соответственно, при пробое цены этого уровня, позиции на продажу, открытые по фигуре «Голова и плечи» необходимо закрыть и открывать позицию в сторону текущего тренда, то есть, на покупку…..”
Мне кажется уже поздно закрывать позиций на продажу )))