POINT AND FIGURE LIBRARY

The Chart Formations
The Long Tail Down

This occurs when a share has an unusually long or unusually steep fall without any of the minor rallies which one typically sees. Tom Dorsey says that the share must fall about 20 boxes (units of price movement). The buy signal occurs on the first 3 box reversal. I must say I have never been convinced that this is a safe chart formation. I don’t see how it portrays an enduring alteration in the equilibrium between buyers and sellers in favour of the buyers. To me it simply represents a highly risky form of bottom fishing. It works on the supposition that the first rally will be the start of a durable upward move, or at any rate a profitable bounce, which seems a dangerous stance.

Tom Dorsey wisely advises operating a stop loss immediately if the buy signal fails and the market makes a lower low. This is essential for swing traders. However, in my book I demonstrate how this formation can be successfully used, in conjunction with options, by long-term buy and hold investors. Tom Dorsey also makes a convincing case for not using the long tail up as a sell signal, so I have not shown it.

Next: The High Pole

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