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 Throwbacks

 

Released 3/17/2021.

Trading Throwbacks

A throwback

A throwback happens frequently among chart patterns. After an upward breakout from a chart pattern, price rises for a handful of days before beginning to retrace. The retrace often takes the stock back down to the breakout price (or it comes close). After that, the stock usually resumes its upward rise.

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 12,711 chart patterns, with 8,333 of them having throwbacks. 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 throwbacks and see if we can figure out how to use them to trade better.


 

1 / 7
chart pattern with a throwback

This slide provides details on throwback behavior. After an upward breakout, price rises a median of 6% in 5 days before peaking. After that, the return to the breakout price is fast, dropping for 3 days (total of 8 since the breakout). Price often continues below the breakout price, sinking a median of 2% but taking 19 days to bottom. That's measured from the date of breakout.

The next slide shows an example of a throwback.
2 / 7
chart pattern with a throwback

This is a head-and-shoulders bottom with an upward breakout. LS is the left shoulder, RS is the right one.

Point A is the breakout, when price crosses (closes above) the green neckline drawn between the two armpits of the head-and-shoulders. Point B is where the throwback bottoms. The stock drops far enough to come close to or touches the breakout price. This stocks finds support at the breakout price.

After the stock completes the throwback at B, the stock gaps higher, suggesting the start of an upward move (a breakaway gap). Buy at the open the next day.

The next slide shows another example.
3 / 7
chart pattern with a throwback

Here's another example of a throwback in a different chart pattern. AB is a double bottom, confirmed as a valid chart pattern when price closes above the peak between the two bottoms (D). Price throws back to C before the stock recovers.

The optimum entry is to use a buy stop a penny above the breakout price. If you miss buying then, a throwback allows you to enter again. Buy the stock when you're sure the throwback has completed. In this example, you can place a buy stop a penny above the minor high at E.

The next slide shows one more example.
4 / 7
chart pattern with a throwback

AB is a double or triple bottom (when including the minor low to the left of A) which confirms when price closes above the highest peak between the two bottoms (C).

Price struggles to rise and then retraces to D. D is where the throwback ends. Notice that price dropped to the bottom of the double bottom chart pattern before finding support.

Point E is where you should enter this trade for the best performance. It represents the optimum entry for a throwback.

The next slide shows the setup.
5 / 7
Picture of throwback trading scenario 1.

I tested three scenarios of entering after a throwback. This is the best setup. This setup buys when price completes a throwback and closes above the top of the chart pattern. Referring to the figure, price is in red and the top of the chart pattern is at A. The throwback is the move represented by the drop from C to D. After the throwback, when price again closes above A, which happens at B, buy at the open the next day.

The next slide shows another scenario.
6 / 7
Picture of throwback trading scenario 3.

This setup places second for performance. This setup buys when price closes above the lowest minor high during the throwback. As price drops during a throwback, it makes minor highs. One is at A. Then price drops and makes a lower minor high at B only this time, price bottoms and closes above peak B at C. The day after it closes above C, buy. Price may reverse and make a lower minor high, but that does not change the original entry signal. Lower entry signals are ignored.

The next slide shows the last trading scenario.
7 / 7
Picture of throwback trading scenario 2.

This setup buys when price closes above the top of the throwback. Referring to the figure, the highest peak in the throwback is at A. When price closes above it at B, buy at the open the next day.

This link provides additional information on these setups.

The End.

See Also

 
Top
 

 

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 Encyclopedia of Candlestick Charts Trading Classic Chart Patterns

Copyright © 2005-2021 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