As of 08/06/2020
Indus: 27,387 +185.46 +0.7%
Trans: 10,331 +115.68 +1.1%
Utils: 829 +3.50 +0.4%
Nasdaq: 11,108 +109.67 +1.0%
S&P 500: 3,349 +21.39 +0.6%
|
YTD
-4.0%
-5.2%
-5.7%
+23.8%
+3.7%
|
 28,150 or 25,000 by 08/15/202010,600 or 9,400 by 08/15/2020870 or 800 by 08/15/202011,300 or 10,200 by 08/15/20203,355 or 3,100 by 08/15/2020 |
As of 08/06/2020
Indus: 27,387 +185.46 +0.7%
Trans: 10,331 +115.68 +1.1%
Utils: 829 +3.50 +0.4%
Nasdaq: 11,108 +109.67 +1.0%
S&P 500: 3,349 +21.39 +0.6%
|
YTD
-4.0%
-5.2%
-5.7%
+23.8%
+3.7%
| |
|
28,150 or 25,000 by 08/15/202010,600 or 9,400 by 08/15/2020870 or 800 by 08/15/202011,300 or 10,200 by 08/15/20203,355 or 3,100 by 08/15/2020 | ||
My book,
Visual Guide to Chart Patterns
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Revised 2/27/2020
In mid March 2011, I posted a blog entry about Sam Weinstein's swing rule. I have updated the results about how often it works, using a new computer model.
Refer to the adjacent figure. Briefly, the drop from A to B is the same as the rise from D to C, according to Weinstein. Point D is the same price as A.
I programmed my computer to find large peaks, those with the peak higher than the surrounding 10 days. That's 10 days before the peak to 10 days after, for a total of 21 days. In the chart, that would be peak A.
Next, I looked for point D, the price at which the stock reached or exceeded the price level of peak A. Following that, I measured the drop between A and D to find point B.
I set the minimum decline to 5% (with the maximum being 100%).
Once I knew the swing from A to B, I could calculate the price of C. Then I looked for a peak near C. I allowed price to fall short of C by 1% but left the top as unlimited. By that, I mean if the stock exceeded C by a lot, I'd accept it as a win (just keep in mind, I looked for the first peak at or above C).
To determine when the swing rule didn't work, once I found point D, I monitored price as it climbed to C. If the stock first dropped to a penny below B, I logged that as a failure of the swing rule to work as expected.
In short, I found peak A then D, calculated how far price dropped to B and added that to A to get C. If price on the way to C dropped below B, the swing rule failed, otherwise it worked.
How often does the swing rule work?
I used data from January 1990 to February 2020 and found swings in 1,320 stocks. I excluded all bear market results. I found 21,120 swings.
Failure rate: 43%. That is, almost half of the swings will fail to make it up to C before dropping below B. (Refer to the above figure).
The swing rule works better for larger swings (that is larger dips from A to B). For example, price will fail to reach C 47% of the time if the AB drop is less than 10%. An AB drop in the range of 30% to 40% will fail 32% of the time.
The time it takes to drop from A to B is about one-fourth the time it takes for price to rise from B to C. If the AB drop takes one month, expect peak C to appear about 4 months after B.
The above chart doesn't show that, but the 1 to 4 ratio is what I found and it aligns with what I found in other tests. That is, price falls twice as fast as it rises. For the swing rule, it will take twice as long (as the AB drop) to rise from B to D and twice as long as the AB drop to rise from D to C. Hence the 4 to 1 ratio. The ratio is an average, so keep that in mind.
I sorted performance by the three decades (1990s, 2000s, 2010s) and found that the swing rule is working better today than it did in the 2000s and 1990s (45% failed in 1990s, 40% in 2000s, and 38% in 2010s).
The swing rule works, but not all the time. When it does work, it can help you exit a trade in a timely manner before a mild to severe drop ensues. By using the 1 to 4 ratio, you can anticipate when price will peak, too. Measure the time for to drop from A to B, multiply it by 4, and you'll have an approximation of when price will reach the swing rule target, C.
-- Thomas Bulkowski
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