As of 09/17/2024
Indus: 41,606 -15.90 0.0%
Trans: 16,014 +171.47 +1.1%
Utils: 1,059 -1.68 -0.2%
Nasdaq: 17,628 +35.93 +0.2%
S&P 500: 5,635 +1.49 +0.0%
|
YTD
+10.4%
+0.7%
+20.1%
+17.4%
+18.1%
|
 42,000 or 40,100 by 10/01/202416,200 or 15,300 by 10/01/20241,100 or 1,000 by 10/01/202418,400 or 16,650 by 10/01/20245,750 or 5,400 by 10/01/2024 |
As of 09/17/2024
Indus: 41,606 -15.90 0.0%
Trans: 16,014 +171.47 +1.1%
Utils: 1,059 -1.68 -0.2%
Nasdaq: 17,628 +35.93 +0.2%
S&P 500: 5,635 +1.49 +0.0%
|
YTD
+10.4%
+0.7%
+20.1%
+17.4%
+18.1%
| |
|
42,000 or 40,100 by 10/01/202416,200 or 15,300 by 10/01/20241,100 or 1,000 by 10/01/202418,400 or 16,650 by 10/01/20245,750 or 5,400 by 10/01/2024 | ||
Closing Price Reversal, Downtrend
|
| Characteristic | Discussion |
| 1 bar | The pattern is composed of one bar, but it uses the closing price of the prior bar. |
| Downtrend | Look for the pattern in a short-term downtrend. |
| Open | The open must be within 25% of the intraday low. |
| Close | The close must be within 25% of the intraday high and be above the prior day's close. |
| Trading Tactic | Explanation |
| Reversal | The pattern is supposed to act as a reversal of the downtrend. |
| Buy | Buy at the open the next day after the pattern. |
| Measure rule | The closing price reversal fulfills the measure rule 72% of the time (bull market). That is, measure the height of the pattern and add it to the high price to get an upward target. |
For the following statistics, I used 1,199 stocks, starting from January 1990 to March 2013, but few stocks covered the entire range. All stocks had a minimum price of $5. Since samples were so numerous, I chose one of every ten patterns. There were two bear markets in the 2000s (as determined by the S&P 500 index), from 3/24/2000 to 10/10/2002 and 10/12/2007 to 3/6/2009. Everything outside of those dates represents a bull market.
For each downtrend closing price reversal, I found when the trend started and when it ended. To find the trend peak or valley, I found the lowest valley and highest peak within plus or minus 10 days (21 days total) each, before the closing price reversal and the same peak/valley test after the closing price reversal. The closest valley or peak before the closing price reversal is where the trend began. The closest peak or valley after the closing price reversal is where the trend ended. I compared the peak or valley to the average of the highest high and lowest low price of the closing price reversal pattern.
The 10-bar peak or valley number tends to find major turning points on the daily charts.
I measured performance from the day after the pattern ended to the nearest trend peak or trend valley.
To determine the inbound price trend (I was looking for a down trend), I used two methods. One was linear regression on the average of the high-low prices in the five days before the pattern. That caught the short-term trend.
I also used the price of the closest minor high or low compared to the average high-low price of the pattern. Anything that wasn't a reversal was thrown out. For example, if the average price of the closing price reversal was $10 and the prior minor high was below $10, then the pattern acted as a continuation of the up trend (that is price must have climbed into the closing price reversal with an assumed upward breakout). The pattern would not be valid in this situation, so it was not used.
| Market | 5% Failure | Average Rise |
| Bull | 42% | 8% |
| Bear | 39% | 9% |
Table 1 lists the failure rates, sorted by market condition along with the average rise. Since the closing price reversal is supposed to act as a reversal of the downward trend, I assumed an upward breakout.
A failure occurs when the stock fails to rise more than 5%.
The failure rates may appear high, but that's typical for short-term patterns like the closing price reversal. The highest failures occur in a bull market: 42% fail to see price rise at least 5%. The average rise is just 8%.
| Market | Success |
| Bull | 72% |
| Bear | 65% |
Table 2 shows how often the measure rule works. Use the measure rule to estimate of how far price is likely to rise.
To do this, measure from the highest high to the lowest low in the pattern to get the height. Add the height to the highest high to get the target.
The best performance of the measure rule occurs in a bull market, with 72% of patterns reaching their target.
| Market | Bull | Bear |
| Net profit/loss | $0.09 | $(159.55) |
| Wins | 52% | 40% |
| Winning trades | 6,167 | 1,136 |
| Average gain of winners | $699.15 | $718.35 |
| Losses | 48% | 60% |
| Losing trades | 5,796 | 1,686 |
| Average loss | ($743.71) | ($751.06) |
| Average hold time (calendar days) | 28 | 15 |
Table 3 shows the performance based on 14,847 trades using $10 commissions per trade ($20 round trip), starting with $10,000 per trade. No adjustments were made for interest, fees, slippage and so on.
The results are sorted by bull or bear market. The trades used the same setup as listed in Closing Price Reversal, downtrend, Performance Statistics.
Here's the setup.
For example, in a bull market, the net gain was 9 cents for all trades. The method won 52% of the time and there were 6,167 winning trades. The average gain of winning trades was $699.15.
Forty-eight percent, or 5,796 trades were losers. They lost an average of $743.71.
The average hold time was 28 calendar days.
Notice how the gains and losses were pegged near 7%, which is how the test was setup.
| Market | Bull | Bear |
| Net profit/loss | $(23.71) | $(127.32) |
| Wins | 29% | 29% |
| Winning trades | 3,466 | 816 |
| Average gain of winners | $693.35 | $714.70 |
| Losses | 71% | 71% |
| Losing trades | 8,542 | 2,007 |
| Average loss | ($314.66) | ($469.67) |
| Average hold time (calendar days) | 11 | 8 |
Table 4 shows the results of 14,847 trades, but this time, a penny below the bottom of the closing price reversal pattern was used as a stop instead of a 7% stop.
For example, in a bull market the net loss was $23.71 for all trades. The method won 29% of the time and there were 3,466 winning trades. The average gain of winning trades was $693.35.
Seventy-one percent, or 8,542 trades were losers. They lost an average of $314.66.
The average hold time was 11 calendar days.
When compared to the 7% stop method, placing a stop below the bottom of the pattern showed that losses dropped dramatically. However, the win/loss ratio suffered and that could not make the pattern a profitable one.
The figure shows a closing price reversal pattern in Arkansas Best (ABFS) on the daily scale, at A.
Price drops leading to the one-day pattern. Price opens near the low for the day and closes near the high for the day, and above the prior day's close, as required by the pattern.
The next day, B, buy the stock at the open, or 7.15.
The stock rises and hits the target (7.65 or 7% above the buy price) as shown in the chart, at C.
A stop is placed 7% below the buy price would exit the trade if needed.
If the pattern stop method were used, the trade would exit a penny below the low at A.
-- Thomas Bulkowski
Below are other short patterns...
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.
Legal notice for paid links: "As an Amazon Associate I earn from qualifying purchases."
|
My Stock Market Books
|
My Novels
|
"I am." is the shortest sentence in the English language.
on