As of 04/17/2024
Indus: 37,753 -45.66 -0.1%
Trans: 14,987 -259.68 -1.7%
Utils: 853 +17.82 +2.1%
Nasdaq: 15,683 -181.88 -1.1%
S&P 500: 5,022 -29.20 -0.6%
|
YTD
+0.2%
-5.7%
-3.2%
+4.5%
+5.3%
|
 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 04/17/2024
Indus: 37,753 -45.66 -0.1%
Trans: 14,987 -259.68 -1.7%
Utils: 853 +17.82 +2.1%
Nasdaq: 15,683 -181.88 -1.1%
S&P 500: 5,022 -29.20 -0.6%
|
YTD
+0.2%
-5.7%
-3.2%
+4.5%
+5.3%
| |
|
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 | ||
Initial release on 7/1/2019, stats updated on 8/27/2020.
The target is the left side high of the pattern.
The above numbers are based on 1,997 perfect trades. See the glossary for definitions.
I programmed my computer to find V-bottoms because to do it any other way would be unfair. I'd pick the patterns which worked and would not see those which didn't.
Some of the guidelines shown in the table reflect the automation.
| Characteristic | Discussion |
| Downtrend | Look for price to make a straight-line run downward with few or no pauses, often fitting inside a channel. |
| Width | At least 3 weeks to 3 months wide. |
| Reversal | Price at the bottom of the V will form a one-day reversal, island reversal, or tail, usually on heavy volume, perhaps gapping upward. |
| Trendline | After the reversal, price pierces a down-sloping trendline drawn along the price tops, confirming the trend change. |
| Retrace | Price on the right side must retrace at least 38.2% of the left side. Larger retraces didn't improve performance much, if any. |
| Breakout | When price retraces 38.2% of the left side, then that's the breakout. |
| No Pause | There should be no pause between the V-bottom and the breakout (38.2% retrace value). Otherwise, it's an extended V-Bottom. |
| No Spike | I removed any V-bottom with a single long price bar as the bottom. |
| Angle | Price drops and reverses, forming an angle with the vertical. In some V-bottoms, the left angle will mirror the right one. For example, if price dropped by 30 degrees, price might rise following a similar angle. |
Trading a V bottom is difficult because calling the turn at the bottom of the V is tough to do correctly. You can use a down trendline (drawn along the descending price tops leading to the V bottom) pierce as the buy signal but it's best to wait 2 or 3 days for price to confirm the tend change. You can also check the mirror angle. Sometimes price will rise in an angle similar to the descent.
For the performance statistics listed above, I used an entry as the price of a 38.2% retrace of the left side of the V-bottom. In other words, if the stock dropped from 10 to 7 and then climbed back up to 8.15, a buy would signal. That is: (10 - 7) * 38.2% + 7 = 8.15.
Check other stocks in the same industry for a trend change. Usually the industry moves as a group and a reversal in one will appear in other stocks in the industry as well.
Consult the associated figure on the right.
| Trading Tactic | Explanation |
The Measure Rule
|
| Breakout | Measure the drop from A to B. When price retraces 38.2% of the way up (C), it constitutes a breakout (entry signal). The 38.2% value is arbitrary. | |
| Measure rule | See the measure rule figure to the right. The target is A, the high price at the start of the pattern. | |
| Price trend | Performance doesn't matter much if the inbound price trend is up or down (as measured from the trend start). | |
| Tall patterns | Tall (take the height of the V-bottom and divide it by the breakout price. If it's larger than 34.7%, then it's a tall pattern) patterns substantially outperform short ones. | |
| Yearly low | For best performance, V-bottoms with breakouts within a third of the yearly low perform best. | |
| Volume trend | A rising volume trend results in the best post breakout performance. | |
| Throwbacks | Throwbacks hurt post breakout performance. |
This is a good example of a V bottom chart pattern. Price drops at a 45 degree slope and then reverses, moving up at a slightly steeper slope. The V bottom also appears to be a head-and-shoulders bottom with the right bottom higher than the left -- call it an ugly head-and-shoulders bottom.
-- Thomas Bulkowski
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