The One Minute Millionaire Diamond Mine
 The Wealth Factor
 Stock Market Strategies
 By Dr. Stephen Cooper

There is More to Hats than Style
How to use Single Bar Formations for Market Timing

Though long-term equity market advances or declines are fueled by corporate earnings, or the lack thereof, short-term price fluctuations often do not have such clear cut motivations. From moment-to-moment, day-to-day, and often week-to-week, the major indices and individual issues alike are led captive by the seemingly whimsical demands of human emotion. Perhaps you have noticed powerful price moves that followed on the heels of seemingly innocuous news, good or bad. Sell-offs often result from fear of possible negative fallout of current bad news, which may or may not be seen for quarters into the future.

In the stock market even the slightest uncertainty about some distant tomorrow can easily cause price stampedes today. Because this psychological side of the markets is quite real and vigorously functioning, you, as a short or mid-term trader, cannot afford to ignore it.

Because the charts are illustrative of this psychological factor, you can gain great advantage by searching for and heeding the subtle signals that are available, if you look for them. One very simple and useful tool in this regard is the Lincoln’s Hat formation. This single bar configuration, and its brother the Reverse Lincoln’s Hat, are often present at or near the terminations of price trends.

The Lincoln’s Hat is seen when the opening and closing flags are near one another and found within the lower 1/3 of the overall length of the bar. On the chart below, I have identified a Lincoln’s Hat for you. Similar in rough appearance to Abraham Lincoln’s famous stove pipe hat, the body of this price bar extends well above the opening and closing flags.

Following a strong upsurge in price that lasted about 4 weeks, a Lincoln’s Hat bar signaled the end of the trend. Often, the bar immediately following the Lincoln’s Hat will show a down close.

On a Lincoln’s Hat day or bar, after the open, strong buying is seen.

The Bulls are flexing their collective muscle, driving price up. This is, in fact, a last gasp which flushes the remaining bullish money out into the open. As the Bears sell into this buying spree, the Bulls give in. The bar then shows a close quite near the level of the open with little trading below the opening price.

Take another look at a Lincoln’s Hat as seen on the following DP chart. This time, the bar after the Lincoln’s Hat did not show a down close, though the next bar in line dropped impressively.

Remember that the Lincoln’s Hat formation is only valid when seen after a series of up-trending bars–the more the better.

In a down trend, look for the Reverse Lincoln’s Hat. This bar, as would be expected, resembles Lincoln’s stove pipe hat placed upside down, as if on a table. After the open, a good deal of selling takes place. Bulls then buy into this selling to the point that the Bearish energy is used up. Prices then return to a level near the open with little trading above it. To view such a bar, we can use this same DP chart just two weeks after the Lincoln’s Hat marked above.

Following the Lincoln’s hat seen in early May, prices dropped sharply over a two week span. As this down-trend terminated, a Reverse Lincoln’s Hat appeared followed immediately by an up-turn in prices. In fact, prior to the May Lincoln’s Hat, another Reverse Lincoln’s Hat signaled the conclusion of a prior down-trend and the start of a new up-trend. Though these two single bar formations are obviously not present at the end of every up or down-trend, they do develop often enough that they are well worth putting on your “Things to watch for” list.

How to Profit

In actual trading situations, I have found the Lincoln’s Hat and Reverse Lincoln’s Hat bars to be of best use to assist in trade exit timing. As a position trader, my approach is to capture 40-50% of a trend during the time covered in a trade. If in a mature trade, the appearance of a Lincoln’s Hat in a long position, or Reverse Lincoln’s Hat in a short position, is sufficient to persuade me to take profits right away.


As a trader, teacher, author and lecturer Dr. Stephen Cooper has guided thousands of students to greater success in trading stocks and options. His site, is an excellent resource for traders of all levels. A free newsletter is available by going to Over the past five years Dr. Cooper has conducted live teleconference courses covering personal financial basics, stock screening, technical analysis and practical trading. He has authored The Online Option Trader, Windows to Wealth, and The Truth About Money. With over 18 years of experience Dr. Cooper is recognized for his successful techniques, his clear and systematic teaching style, and technical expertise.