As of 08/11/2020
  Indus: 27,687 -104.53 -0.4%  
  Trans: 10,890 +24.59 +0.2%  
  Utils: 822 -19.04 -2.3%  
  Nasdaq: 10,783 -185.54 -1.7%  
  S&P 500: 3,334 -26.78 -0.8%  
YTD
-3.0%  
-0.1%  
-6.5%  
 +20.2%  
 +3.2%  
  Targets    Overview: 07/31/2020  
  Up arrow28,150 or 25,000 by 08/15/2020
  Up arrow11,100 or 10,050 by 09/01/2020
  Up arrow870 or 800 by 08/15/2020
  Up arrow11,300 or 10,200 by 08/15/2020
  Up arrow3,500 or 3,250 by 09/01/2020
CPI (updated daily): Arrows on 6/29/20
As of 08/11/2020
  Indus: 27,687 -104.53 -0.4%  
  Trans: 10,890 +24.59 +0.2%  
  Utils: 822 -19.04 -2.3%  
  Nasdaq: 10,783 -185.54 -1.7%  
  S&P 500: 3,334 -26.78 -0.8%  
YTD
-3.0%  
-0.1%  
-6.5%  
 +20.2%  
 +3.2%  
  Targets    Overview: 07/31/2020  
  Up arrow28,150 or 25,000 by 08/15/2020
  Up arrow11,100 or 10,050 by 09/01/2020
  Up arrow870 or 800 by 08/15/2020
  Up arrow11,300 or 10,200 by 08/15/2020
  Up arrow3,500 or 3,250 by 09/01/2020
CPI (updated daily): Arrows on 6/29/20

Bulkowski on Vertical Run Down

 

Vertical Run Down: Summary

This article describes findings for a chart pattern that I call a vertical run down. That's when price plunges in a straight line drop, day after day, with little or no overlap between price bars. I provide a few performance statistics in the Results section.

$ $ $

My book, Encyclopedia of Chart Patterns Second EditionEncyclopedia of Chart Patterns 2nd Edition book. pictured on the left, takes an in-depth look at 63 chart and event patterns, including performance statistics. The second edition does NOT include the vertical run down. Sorry.

If you click on the above link and then buy the book (or anything) while at Amazon.com, the referral will help support this site. Thanks.

-- Tom Bulkowski

$ $ $

The vertical run down in red
Vertical Run Down (Red)

 

Vertical Run Down: Identification Guidelines

When searching for a vertical run down, follow these guidelines.

CharacteristicDiscussion
Vertical RunPrice moves down in a steep drop for at least four sessions.
OverlapThere is minimal overlap from price bar to bar.
Flag*Price can pause along the vertical run, occasionally multiple times. This pause (which I call a flag, regardless of the shape) happens 6% of the time.

* The only "flag" (congestion area) I searched for was when price failed to make a new low for at least three days. All other types of pauses were ignored.

Vertical Run Down: Results

Results found for vertical run down

The figure on the right shows the results from a study of 2,036 vertical runs in 469 stocks in the three bull markets from July 1995 to January 2014.

After a vertical run ends (black price bars), price continues to climb 46% of the time, completely retracing the drop suffered in the vertical run.

The median (midway) retrace is 81%. Half of the time, price will retrace more and half will retrace less.

Most of the time (84%), the stock will retrace at least a portion of the move down. The other 16% sees price continue dropping but at a slower pace.

Top of page

Vertical Run Down: Trading Tips

The following table shows trading tactics for the vertical run split into trading styles.

Trading TacticExplanation
Buy and holdThe retrace is short-lived so hold onto existing positions. Since nearly half of all vertical runs retrace the entire drop, don't be shaken out of a vertical run down.
Position tradersJust 20% of vertical runs suffer a trend change (a drop of at least 20%). Thus, position traders should hold onto their stocks, but situations vary.
Swing and day traders: GapsSeventy-five percent of gaps taller than 25 cents are continuation gaps, not exhaustion gaps, in a vertical run down. Ignore any gap before and including the third bar since a valid vertical run down takes four bars. The gap must be at least 25 cents tall. Measure from the start of the vertical run (high price) to the middle of the gap and project that height downward to get a target. The gap will be within 10 percentage points of the middle of the run 41% of the time. So allow a fudge factor.
Swing and day traders: Tall barA tall bar ends the vertical run down within a day 41% of the time. If the 4th or later bar in the vertical run is unusually tall (at least twice the 1-month average height before the vertical run began), the end of the run may be near. Twenty size percent of the time, that long bar ends the run, but 41% of the time, either that tall bar or the next bar ends the run.
Swing and day traders: RetraceAfter bar 4 (meaning a vertical run down has been established) place a buy stop a penny or two above the high of the prior price bar. Trail it lower by placing the stop a penny or two above the high of the prior bar -- never raise the buy stop. When the turn occurs, set a target that is half the distance up the vertical run. This should work 64% of the time. See the below trading example.

Top of page

Vertical Run Down: Examples

Vertical run example

Shown is a picture of a vertical run down from A to B.

This is how I would trade it. I would go through the identification guidelines to make sure I had a valid vertical run down.

There are at least four price bars in the vertical run and each of them have little overlap.

After bar 4, that is, once the vertical run down has been established, I would use a trailing buy stop. I would place it a penny or two above the prior bar and lower it as each lower high occurred.

For example, when bar C begins forming, I would lower my stop to a penny or two above the high of bar B (shown by line D). When C climbs to the buy stop (D), the trade executes and I buy the stock.

A stop loss should be a penny or two below B and raised as price climbs.

I set the exit target to be midway down the price run. The chart uses the logarithmic scale, so the exit price at E doesn't look midway, but it is. When price reaches that target, the stock sells.

-- 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 © 2005-2019 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

For old timers (Monty Python): You're parrot's not dead. It's sleeping.Smiley