As of 04/25/2024
Indus: 38,086 -375.12 -1.0%
Trans: 15,297 +219.09 +1.5%
Utils: 895 +1.83 +0.2%
Nasdaq: 15,612 -100.99 -0.6%
S&P 500: 5,048 -23.21 -0.5%
|
YTD
+1.1%
-3.8%
+1.5%
+4.0%
+5.8%
|
 39,800 or 37,150 by 05/01/202416,200 or 15,000 by 05/01/2024885 or 850 by 05/01/202416,700 or 15,800 by 05/01/20245,250 or 5,025 by 05/01/2024 |
As of 04/25/2024
Indus: 38,086 -375.12 -1.0%
Trans: 15,297 +219.09 +1.5%
Utils: 895 +1.83 +0.2%
Nasdaq: 15,612 -100.99 -0.6%
S&P 500: 5,048 -23.21 -0.5%
|
YTD
+1.1%
-3.8%
+1.5%
+4.0%
+5.8%
| |
|
39,800 or 37,150 by 05/01/202416,200 or 15,000 by 05/01/2024885 or 850 by 05/01/202416,700 or 15,800 by 05/01/20245,250 or 5,025 by 05/01/2024 | ||
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Swing and Day Trading
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After a downward breakout from a chart pattern, price drops but then sometimes curls upward and returns to the breakout price or chart pattern boundary. This curling price behavior is called a pullback. This page provides details on the behavior of this unique chart pattern.
| Characteristic | Discussion |
| Shape | Pullbacks can take any shape. |
| Time | By convention, a pullback occurs within 30 days after the breakout. |
| White space | The stock must not slide along the breakout price but must drop down, curl upward and return to, or come close to, the breakout price or chart pattern trendline. See the above figure. |
| Volume | High volume breakouts have a tendency to pullback more often than low volume ones. |
Reference the above figure in the following discussion.
| Trading Tactic | Explanation |
| Expect one | Expect a pullback will occur. |
| Underlying support | This is the chief cause of a pullback. Price bumps against underlying support and then retraces the decline. Be sure to look for prior peaks and valleys, horizontal consolidation regions (HCRs), and other signs of underlying support before trading. |
| Pullback rate | Since year 2000, 58% of 8,765 chart patterns with downward breakouts had pullbacks. |
| Time | Price drops for 6 days after the breakout, on average, before beginning the return journey. |
| Loop time | It takes an average of 11 days, total, for price to complete the return trip back to the breakout, as measured from the breakout day to the day price returns. |
| Height | The average drop from the breakout price to the bottom of the pullback is 9%, but a frequency distribution shows that most fall in the range of 4% to 10% about evenly. |
| Volume | A high volume (above the 30-day average) breakout pulls back 66% of the time, on average. |
| Price rise | After the stock returns to the breakout price, 53% continue rising above the chart pattern. That means 47% of the time price resumes the decline. |
For additional information on pullbacks and how you can improve profits by placing a tight stop, see the study on Money management.
The measure rule for pullbacks is similar to the measured move down chart pattern. Using the above figure as a reference, find where the downward price trend begins (the swing high at point A) and subtract the price where the trend bottoms at B (the swing low). Subtract the difference from the pullback high at C to get a price target.
If price has more than three consecutively lower closes ending the day before the breakout, then expect price to have a lower probability of pulling back. See the study,
Price Trends Leading to the Breakout. The picture to the left shows an example of price making four consecutively lower closes and not pulling back.
During a pullback attempt, if price remains below the breakout price, then expect a more powerful move than if price rises above the breakout. I measured this in 19 chart pattern types from July 1991 to March 2005 and found 10,348 chart patterns. Of that group, 2,738 had pullbacks. When price remained equal to or below the breakout price, the drop averaged 25% (323 samples qualified). When price climbed above the breakout, the resulting drop averaged just 20% (2,415 samples).
The numbers measure the drop from the breakout to the ultimate low, which is the lowest low before price rises by at least 20%. The results are based on hundreds of perfect trades, so do not expect to duplicate the results in actual trading.
The above figure shows an example of a pullback from a downward breakout of a descending triangle chart pattern. After price returns to the breakout price, it drops but the decline bottoms in a few days. Then price recovers and busts the triangle when it closes above the top trendline, signaling a powerful move upward.
-- Thomas Bulkowski
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