This column was originally published on RealMoney on July 28 at 9:59 a.m. EDT. It's being republished as a bonus for readers.

On Thursday night, Richard Suttmeier and I had a chat in Columnist Conversation about the difficulty of valuing the homebuilders.

One of the themes we touched on is how experience increases one's ability to look a bit beyond the numbers and find patterns; specifically, to see the valuation patterns evolving.

Doesn't it make sense that the best analysts, irrespective of discipline, apply a healthy dose of experience to look past the raw numbers?

If consistently good trading and investment decisions were possible using only raw data with a rigid interpretation, we could all just go home and let the machines do it.

There's got to be some aspect of learning that goes into the trading process.

What about program trading, you ask? Well, even program traders employ system learning tools like neural networks and walk-forward optimization of their systems to enable them to adapt to changing market conditions.

In essence, their programs are geared to do the very things we do as traders: adapt.

Over the past couple of weeks, there has been a bit of chatter on RealMoney about head-and-shoulder patterns. I've seen a few lately, and they're all different. By examining them more closely, I think you'll learn that not all patterns are created equally. Some offer more profit than others.

Let's take a look.

An inverse head-and-shoulders pattern is close to completion on the weekly chart of Pfizer ( PFE).

But there's one problem: This relatively low-beta stock has run about 15% in the last couple of weeks. That's an advance that just begs for profit-taking.

So a breakout above the neckline would have more profit potential if more work was done at current levels to allow for some profit-taking.

Notice the slope of the neckline: downward.

This weekly chart of Merck ( MRK) shows another inverse head-and-shoulders, only this one slopes upward. There's a big difference in profit potential between Pfizer and Merck. Can you see it? This head-and-shoulders pattern will be completed only after the stock has run 50% from the head that was established in October. That's a pretty big run, and if you've been waiting for this pattern to complete before going long, you're a day late and a dollar short.

Look back at the previous chart and you'll see that Pfizer ran up around 30% from the head. That's still a big advance, but we're not trying to bottom-fish here -- we're trying to find tradable price patterns. And either way, money management wins the day. Keep tight stops on your entries and your risk is diminished relative to the profit potential of the trade.

The 2006 high that forms the head of this head-and-shoulders pattern in Alcan ( AL) is more than double the price of the 2005 low. After a run like that, a pullback should be expected. But the pattern isn't complete until Alcan falls below $42.50. Until then, all I see is a stock that's back at support.

I'm not bullish on the basic materials sector now, but if you are, Alcan is offering a low-risk buying opportunity. I'd try to buy as close to $42.50 as possible, with a stop just a bit lower.

Peabody Energy ( BTU) has rewarded the patient bull. This is one stock that proves that buy and hold isn't a bad strategy.

Over the past few months, however, the bloom has come off the rose and it has given up a lot of gains. Notice how the break of support was followed by a quick rally back to the trend line -- only to be followed by another decline. This looks like a short to me. The ideal entry would be on any strength over the next week or two -- as close to $60 as possible -- with a stop just above the trend line drawn above.

A reader has asked for my take on Google ( GOOG). A.D. noted that "it seems like it is trading in a range between $380-$390. MACD is negative and RSI is low. Also the 50-day moving average looks like it's crossing under the 200-day moving average. Which way do you think this channel will be resolved?"

Let's take a look. First, notice that the 200-day moving average is still moving higher on a pretty steady slope. The last time Google fell below the 200-day moving average, those who bought the dip were richly rewarded.

I've included a MACD indicator, which I don't show very often. This is a combination trend and momentum indicator. You can see the three reliable crossover sell signals highlighted above. What we aren't seeing yet is a buy signal from MACD. The price will have to move back above the 200-day moving average before we get a MACD buy signal.

As for the $380-$390 range, that's just too skinny a range to keep track of. Move the decimal point over to the left and you get a range of $38 to $39. That's not a trading range, it's just a bit of churning at the bottom of a $40 range between around $420 and $380.

As I see it, Google doesn't offer a great risk-reward now. If I had to take a position, I'd be a buyer with a tight stop in the mid-$370s, but the upside is probably limited to around $425. That's a lot of dollars, but only about 10% -- not enough to get my attention.

Be careful out there.
Dan Fitzpatrick is a freelance writer and trading consultant who trades for his own account in Encinitas, Calif. He is a former co-manager of a hedge fund and teaches seminars on technical analysis, options trading and asset-protection strategies for traders and business owners. Fitzpatrick graduated from the McGeorge School of Law and was a fellow at the Pacific Legal Foundation, a nonprofit public interest firm specializing in constitutional law. He also practiced law in the private sector before pursuing trading as a full-time career. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. While Fitzpatrick cannot provide investment advice or recommendations, he appreciates your feedback; click here to send him an emai

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