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Written and copyright © 2010-2011 by Thomas N. Bulkowski. All rights reserved.
I discovered the diving board chart pattern on November 25, 2010 -- Thanksgiving day -- when I went shopping for stocks to buy. I noticed that price formed a flat base (the diving board)
and then plunged downward (diving into the water) followed by a straight-line run up (returning to the surface and climbing out of the water).
The flat base and downward plunge reminded me of jumping off a diving board, hence the name for the pattern.
I found 366 diving board patterns using the weekly charts in 562 stocks from January 1995 to December 2010. That means it's a rare pattern, at least on the weekly scale. A spot check
of the pattern reveals that it also appears on the daily charts, but time prevented a thorough search for them on that scale. The discussion below pertains to diving board
chart patterns on the weekly scale.
The ideal diving board chart pattern, in the graphic below, shows the shape of the pattern.
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Ideal Diving Board Pattern
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Important Bull Market Results for the Diving Board
Overall performance rank (1 is best): 3 out of 42
Break even failure rate: 5%
Average rise: 39%
The above numbers are based on hundreds of perfect trades. See the glossary for definitions.
Diving Board Identification Guidelines
| Characteristic | Discussion |
| Weekly scale | Use the weekly price chart to find this pattern. |
| Diving board | Look for price to have a flat bottom, not top (the top can be any shape, but a flat bottom is critical). This is the diving board. |
| Plunge | Price makes a straight-line run down or nearly so (see Plunge in the figure below). This is the plunge into the water. |
| Nubbin | 63% of the patterns form a nubbin on the reversal week and not before. See Nubbin in the below figure. |
| Recovery | After the sharp drop, price recovers in a straight-line run upward. This is the move from the bottom of the pond back onto shore. |
Look for the diving board chart pattern on the weekly scale. That's the scale I was using when I noticed it, so you can find it on the daily and other charts but performance will vary.
Price should make a flat base. In other words, the bottoms of price should line up with few outliers plunging through the bottom. I prefer a tight congestion region that's horizontal,
but allow variations. I counted a few patterns with slanting bases (forming symmetrical triangles). A horizontal congestion region seemed to give the best
performance. The flat base averaged 169 days or about 5.5 months, with a median of 105 days (about 3.5 months).
After the flat base, look for a price plunge that is more than a week in length. I did not include those that showed only a 1-week plunge. I looked for a straight-line drop down, not one
that meandered lower and had lots of consolidation regions. I wanted the decline to be a serious one.
The drop from the base of the pattern until the price trend reversed averaged 26%. The median drop was 24%.
I noticed that price often made what I call a nubbin. That's a lower shadow on the reversal candle that pokes below the two adjacent candles. No other candle showed that as price dropped in
the straight-line run down. The chart shows an example. It's the difference between the surrounding candle lows and the lowest low when price reverses at the bottom of the diving plunge.
I found that a nubbin occurs 63% of the time. That means you can use it as an entry signal.
Once price reverses at the bottom of its plunge, it rises often in a straight-line move up (but not always). I found that 64% climbed far enough to at least reach the bottom of the
diving board before encountering a trend change (a drop of at least 20%). If you measure the rise using the trend high as the end point (which is the top of a straight-line run up, or
nearly straight, often following a trendline), 53% reach the diving board.
Diving Board Trading Tips
The median diving board length was 105 days. Those with boards shorter than 105 days showed gains average 43% versus those with longer boards and gains of 41%. The difference is small, but
shorter diving boards tend to outperform. A frequency distribution says to keep the board length below 6 months for the best performance. Using a 6 month cutoff, the performance is 43% (for
boards shorter than 6 months)
versus 35% (for longer boards). However, the distribution varies as the diving board length rises. Thus, don't put too much emphasis on board length. It's not that important.
The plunge into the water, from the bottom of the diving board until price reverses at the low, measured a median of 24%. However, larger plunges seemed to result in better performance.
Although samples were few (28), drops over 55% resulted in gains averaging 80%. Plunges less than 55% gained just 39%.
| Trading Tactic | Explanation |
| Diving board length | 0-6 months is best. |
| Plunge | Drops over 24% are best, especially 55% or more. |
| Nubbin | Look for a nubbin to determine plunge end. |
| Ride it | Price returns to the diving board bottom 64% of the time before changing trend, taking 6.5 months to make the trip. |
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A nubbin makes finding the reversal week easy. As price drops, watch the lower shadow. In a straight line run, the next week's candle will overlap the prior week until the reversal
occurs. After the reversal, a lower shadow (the nubbin) will be clear of the two adjacent weeks. Buy at the open a week later.
I show a chart of a nubbin ( the red portion at the bottom of price bar A) at the bottom of a plunge off the diving board pattern. The next week (B), price moves up, leaving the
nubbin exposed and visible (in other words, it creates a nubbin instead of price continuing to move lower). Buy at the open the following week (C). If you don't see a nubbin at the
end of week B (meaning price continues lower), then wait until a nubbin appears.
The good news is that this technique -- waiting for a nubbin to appear -- correctly marks the bottom of the move on the weekly chart 63% of the time. The bad news is that
when a nubbin appears, performance suffers: Those having a nubbin reversal showed gains averaging 37% compared to gains of 45% for those without a nubbin reversal. Those without a nubbin
means that there were more than one nubbin appearing before the actual reversal occurred. Thus, buying at any of the nubbins along the way would have caused a loss.
If you can determine when the plunge has ended, such as using a down-sloping trendline, then that could get you into the trade as well.
Hold onto the trade as long as the upward trend continues. As a benchmark, I used a trend change to signal the end of a trend. That means price turned down at least 20% after peaking.
Measuring the climb from the plunge low to that peak showed that 64% of the patterns had price reaching or exceeding the bottom of the diving board.
Using the trend end (often the end of a straight-line run) showed that 53% returned to the bottom of the diving board. It took an average of 6.5 months (194 days) to reach
the ultimate high (the highest high before a 20% change in trend).
Diving Board Example
The chart shows an example of a diving board chart pattern on the weekly scale in Albemarle (ALB).
Price moves horizontally in a congestion region for about four months before
making a plunge lower. Traders versed in chart patterns will recognize a descending triangle.
Notice that the nubbin appears at the bottom of the plunge and not before. The nubbin is like a hair growing out of a pimple -- something your shaver would catch.
Anyway, seeing the nubbin and waiting a week for price to confirm the upward reversal and buying in the next week, at the open, would result in a large gain that week. Holding onto
the stock longer would increase the gains.
-- Thomas Bulkowski
Other Diving Board Examples
Written and copyright © 2010-2011 by Thomas N. Bulkowski. All rights reserved. You're at the end of the road again.
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