http://stockcharts.com/def/servlet/SC.web?c=ILXO,uu At what point would I want to trade this stock, and from what direction? When are the odds most strongly in my favor to trade (buy/sell) this formation?
I like head and shoulder patterns that are a bit tighter than this. Like the right shoulder closer to the head, or, both shoulders a bit closer to the head. But, to play this one, the pivot low on the right shoulder would need to break on high volume. There may be some support at this pivot low though so you could wait for a pullback after the pivot low is taken out. If you like breakout/down plays though, then take a break of the pivot on high volume. That's how I see it.
What are the odds, for a chart like this, that the stock never completes the head and shoulders formation? Inotherwords, how much of the pattern (shoulder-head-shoulder) do I need to see if I were thinking about shorting this, or is it just best to what until the 'pivot point' and short it then?
It kind of sounds like you're talking about anticipating what the chart will do. I, and many traders will agree, never anticipate. Patterns tell us which direction a price may move, after the pattern has completed. We only anticipate that after a pattern has completed it will move in the direction that the pattern suggests. In the example that you have given, let's see what it does. The low pivot could act as support or it could play as a break down. Hence, the beauty of support and resistance. Right now its wait and see from my perspective with this example.
I agree that this chart example feels a bit spread out. However, I would have to disagree about anticipating patterns, only in that these days chart patterns are pretty much public knowledge at this point. Given that many people would still blindly short breaks of necklines and use the right shoulder high as a stopping out point, I would rather initiate a short when the right shoulder begins to rollover, thereby keeping my stop very tight. Hopefully you are not looking to short this stock based purely on the chart formation, otherwise I would heed tradersaavy's advice and not anticipate. But if you have some other edge or evidence you can refer to that portends a move lower, then I believe you are better off anticipating the pattern and shorting at a more favorable risk/reward level. One thing is for sure, if you play a pattern the way everyone else would, it's a sure road to accumulating losses. The market just isn't that easy anymore, and one always needs to be one step ahead of "conventional wisdom". Failed signals are often more profitable than the original pattern these days, and with good reason. IMO, if this stock is a small/obscure issue, the chances that the pattern will work to fruition is much higher than if the same pattern occurred in say a major index or dow stock.
And this is what makes a market. Many traders will see something different in the same pattern and play this pattern different ways. One thing is for sure: these patterns have existed for more years than most of us have been trading, and they continue to reappear. They also continue to play out in the classical manner as well. That's where small losses and letting winners run comes in to the game. They won't all work classically, but, then some will.
A recent Classic Pattern, the reverse Head and Shoulder, that has worked just fine so far. Some profits could have been taken with a trailing stop on the rest.
There is a nicer one for you. C (Citigroup) http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=c&sid=0&o_symb=c&freq=1&time=9 Head and shoulder with lower lows MACD. You may want to wait for the price to break the neck, and short at the last call. You have to be patient and wait for the neck to break, because looking back at Oct-Dec02 and Jan03, it did the same thing, but never broke the neck. My problem with this is it is spread out too wide (3 months). Cheers!!