As of 09/15/2021
  Indus: 34,814 +236.82 +0.7%  
  Trans: 14,420 +134.87 +0.9%  
  Utils: 925 +0.27 +0.0%  
  Nasdaq: 15,162 +123.77 +0.8%  
  S&P 500: 4,481 +37.65 +0.8%  
YTD
 +13.7%  
 +15.3%  
 +7.0%  
 +17.6%  
 +19.3%  
  Targets    Overview: 09/15/2021  
  Up arrow35,600 or 33,800 by 10/01/2021
  Up arrow15,400 or 14,000 by 10/01/2021
  Up arrow965 or 905 by 10/01/2021
  Up arrow15,600 or 14,700 by 10/01/2021
  Up arrow4,650 or 4,350 by 10/01/2021
CPI (updated daily): Arrows on 9/15/21
As of 09/15/2021
  Indus: 34,814 +236.82 +0.7%  
  Trans: 14,420 +134.87 +0.9%  
  Utils: 925 +0.27 +0.0%  
  Nasdaq: 15,162 +123.77 +0.8%  
  S&P 500: 4,481 +37.65 +0.8%  
YTD
 +13.7%  
 +15.3%  
 +7.0%  
 +17.6%  
 +19.3%  
  Targets    Overview: 09/15/2021  
  Up arrow35,600 or 33,800 by 10/01/2021
  Up arrow15,400 or 14,000 by 10/01/2021
  Up arrow965 or 905 by 10/01/2021
  Up arrow15,600 or 14,700 by 10/01/2021
  Up arrow4,650 or 4,350 by 10/01/2021
CPI (updated daily): Arrows on 9/15/21

Bulkowski on Trading Pullbacks

 

Released 3/18/2021.

Trading Pullbacks

A pullback

The chart shows what we're looking for: a pullback. Price breaks out downward from a chart pattern and then retraces, pulling the stock back to the breakout.

In the following charts, the numbers are median values, meaning I report on the middle number in a sorted list of numbers. The results are based on research using 463 stocks and data from July 1992 to October 2020, but not all stocks covered the entire range. I found 9,680 chart patterns, with 6,300 of them having pullbacks. I used 26 varieties of chart patterns in the search.

Because the numbers are recent and based on median values instead of averages, the results in this article may differ from other articles on this website. Time is measured in calendar not trading days.

Let's take a closer look at pullbacks and see if we can figure out how to use them to trade better.


 

1 / 4
chart pattern

This slide provides details on pullback behavior. After a downward breakout, price drops a median of 7% in 4 days before bottoming. After that, the stock returns to the breakout price, rising for 4 days (total of 8 since the breakout). Price often continues above the breakout price, rising a median of 4% but taking 26 days to peak. That's measured from the date of breakout. After the pullback rise completes, the stock drops 59% of the time.

The next slide shows an example of a pullback.
2 / 4
chart pattern

AB is a double top with an downward breakout. It confirms as a valid double top when price closes below the valley between the two peaks (below the green line, C).

The stock drop for 3 days below the green line and then pulls back to D. After that, the stock continues lower.

After peaking at D, short the stock when price closes below the breakout price again. That happens the day after D, so enter the trade at the open the following session or near the close on the same day (when it's clear price will close below the green line).

The next slide shows another example.
3 / 4
chart pattern

Here's another example of a pullback in a different chart pattern. The two red lines outline a symmetrical triangle.

In this example, price breaks out downward at A but pulls back to B. After that, the stock resumes its downward move, to C.

In this case, once price peaks at B, short the stock when it closes below the breakout price. The green line shows the breakout price. The stock closes below the line the day before D, so you'd short it at the open of bar D.

The next slide shows one more example.
4 / 4
chart pattern

This is a head-and-shoulders top chart pattern. The breakout is downward at A when price closes below the green neckline. Price takes three days before deciding to pull back to the breakout.

The pullback sucks price upward and it keeps rising. In this case, because the stock has closed above the top of the chart pattern, busting the head-and-shoulders top, you'd avoid shorting the stock. Busted patterns can lead to strong upward moves.

The dne (end spelled backward).

See Also

 
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