As of 10/29/2020
  Indus: 26,659 +139.16 +0.5%  
  Trans: 11,184 +237.90 +2.2%  
  Utils: 868 +2.32 +0.3%  
  Nasdaq: 11,186 +180.72 +1.6%  
  S&P 500: 3,310 +39.08 +1.2%  
YTD
-6.6%  
 +2.6%  
-1.3%  
 +24.7%  
 +2.5%  
  Targets    Overview: 09/29/2020  
  Up arrow29,300 or 27,400 by 11/01/2020
  Up arrow12,000 or 11,000 by 11/01/2020
  Up arrow915 or 840 by 11/01/2020
  Up arrow12,800 or 11,300 by 11/01/2020
  Up arrow3,700 or 3,400 by 11/01/2020
CPI (updated daily): Arrows on 10/23/20
As of 10/29/2020
  Indus: 26,659 +139.16 +0.5%  
  Trans: 11,184 +237.90 +2.2%  
  Utils: 868 +2.32 +0.3%  
  Nasdaq: 11,186 +180.72 +1.6%  
  S&P 500: 3,310 +39.08 +1.2%  
YTD
-6.6%  
 +2.6%  
-1.3%  
 +24.7%  
 +2.5%  
  Targets    Overview: 09/29/2020  
  Up arrow29,300 or 27,400 by 11/01/2020
  Up arrow12,000 or 11,000 by 11/01/2020
  Up arrow915 or 840 by 11/01/2020
  Up arrow12,800 or 11,300 by 11/01/2020
  Up arrow3,700 or 3,400 by 11/01/2020
CPI (updated daily): Arrows on 10/23/20

Bulkowski on the Pivot Point Reversal, Downtrend Chart Pattern

 

The pivot point reversal pattern
Pivot Point Reversal, Downtrend

 

Pivot Point Reversal Chart Pattern: Important Bull Market Results

Overall performance rank (1 is best)**: 17/23
Break even failure rate*: 43% (up breakouts)
Average rise*: 7%
Percentage meeting price target*: 77%
 
The above numbers are based on hundreds of perfect trades as of 3/14/2013. See the glossary for definitions.
* Based on the trend high, not the ultimate high. See text.
** Based on the average rise compared to other small patterns with upward breakouts in a bull market

Pivot Point Reversal, Downtrend Chart Pattern: Identification Guidelines

CharacteristicDiscussion
1 barThe pattern is composed of one price bar.
DowntrendLook for the pattern in a short-term down trend.
CloseThe close must be above the prior day's high.

Top of page

Pivot Point Reversal, Downtrend Chart Pattern:, Trading Tips

Trading TacticExplanation
ReversalThe pattern is supposed to act as a reversal of the up trend, and it does, but only 31% of the time in a bull market.
Buy/ShortOnce price closes above the top or below the bottom of the pattern, buy/short at the open the next day, respectively.
Measure ruleThe pivot point reversal fulfills the measure rule 77% of the time (bull market, up breakout). That is, measure the height of the pattern and add it to the high price to get an upward target or subtract it from the intraday low to get a downward price target.

Pivot Point Reversal, Downtrend Chart Pattern: Performance Statistics

For the following statistics, I used 1,125 stocks, starting from January 1990 to March 2013, but few stocks covered the entire range. All stocks had a minimum price of $5. Since samples were so numerous, I used one every 25 patterns. There were two bear markets in the 2000s (as determined by the S&P 500 index), from 3/24/2000 to 10/10/2002 and 10/12/2007 to 3/6/2009. Everything outside of those dates represents a bull market.

For each pivot point reversal, I found when the trend started and when it ended. To find the trend peak or valley, I found the lowest valley and highest peak within plus or minus 10 days (21 days total) each, before the pivot point reversal and the same peak/valley test after the pivot point reversal. The closest valley or peak before the pivot point reversal is where the trend began. The closest peak or valley after the pivot point reversal is where the trend ended. I compared the peak or valley to the average of the high and low price of the pivot point reversal pattern (2nd day).

The 10-bar peak or valley number tends to find major turning points on the daily charts.

I measured performance from the day after the breakout (opening price) to the nearest trend peak or trend valley.

To determine the inbound price trend (I was looking for a down trend), I used linear regression on the average of the high-low prices in the ten days before the pattern. That caught the short-term trend.

Pivot Point Reversal, Downtrend Chart Pattern: Performance and Failure Rates

Table 1: Performance and Failure Rates
Market/Breakout direction 5% Failure  Average 
 Rise/Drop 
Bull market, up breakout43%7%
Bull market, down breakout48%-7%
Bear market, up breakout34%9%
Bear market, down breakout29%-12%

Table 1 lists failure rates, sorted by market condition and breakout direction along with the average rise or decline.

A failure occurs when the stock moves less than 5% in the breakout direction.

The failure rates may appear high, but that's typical for short-term patterns like the pivot point reversal. The highest failures occur in a bull market.

Top of page

Pivot Point Reversal, Downtrend Chart Pattern: Measure Rule

Table 2: Measure Rule Performance
Market/Breakout direction Success 
Bull market, up breakout77%
Bull market, down breakout73%
Bear market, up breakout70%
Bear market, down breakout77%

Table 2 shows how often the measure rule works. Use the measure rule to estimate of how far price is likely to rise or drop.

To do this, measure from the high to the low in the pattern to get the height. Add the height to the high or subtract it from the low to get the target.

 

 

Pivot Point Reversal, Downtrend Chart Pattern: Trading Performance

Table 3: Testing the Pivot Point Reversal, Downtrend
Market/Breakout direction Bull/Up  Bull/Down  Bear/Up  Bear/down 
Net profit/loss$71.03$(55.99)$(107.41)$72.57
Wins56%45%44%53%
Winning trades5,5152,351931698
Average gain of winners$703.10$743.59$719.65$766.38
Losses44%55%56%47%
Losing trades4,2922,9151,189625
Average loss($741.15)($700.86)($755.01)($702.27)
Average hold time (calendar days)28261613

Table 3 shows the performance based on 18,627 trades using $10 commissions per trade ($20 round trip), starting with $10,000 per trade. No other adjustments were made for interest, fees, slippage and so on.

Here's the setup.

For example, in a bull market after an upward breakout, the net gain was $71.03 for all trades. The method won 56% of the time and there were 5,515 winning trades. The average gain of winning trades was $703.10.

Forty-four percent, or 4,292 trades were losers. They lost an average of $741.15.

The average hold time was 28 calendar days.

Notice how the gains and losses were pegged near 7%, which is how the test was setup.

Top of page

Pivot Point Reversal, Downtrend Chart Pattern: Trading Example

Pivot Point reversal in 3M (MMM)

The figure shows a pivot point reversal pattern in 3M (MMM) on the daily scale, at A.

The short-term price trend is downward just before the pivot point reversal. At A, the stock closes above the prior day's high, confirming the reversal.

At B, the stock stages a breakout. Buy at the open the next day, C.

When price climbs 7% above the buy price, sell. I don't show that on the chart.

A stop placed 7% below the buy price would stop out the trade in case of a reversal. I don't show that either. Go figure.

-- Thomas Bulkowski

Top of page

See Also

 

Support this site! Clicking any of the books (below) takes you to Amazon.com. If you buy ANYTHING while there, they pay for the referral.

My novels:  Bumper's Story Head's Law

Chart Patterns: After the Buy Getting Started in Chart Patterns, Second Edition Trading Basics Fundamental Analysis and Position Trading Swing and Day Trading Visual Guide to Chart Patterns Encyclopedia of Candlestick Charts Encyclopedia of Chart Patterns 2nd Edition Trading Classic Chart Patterns

Copyright © 2005-2020 by Thomas N. Bulkowski. All rights reserved.
Disclaimer: You alone are responsible for your investment decisions. See Privacy/Disclaimer for more information.
Some pattern names are registered trademarks of their respective owners.

Home Advertise Contact Donate Links Privacy/Disclaimer

111,111,111 x 111,111,111 = 12,345,678,987,654,321Smiley