As of 04/18/2024
Indus: 37,775 +22.07 +0.1%
Trans: 14,947 -39.62 -0.3%
Utils: 860 +6.95 +0.8%
Nasdaq: 15,602 -81.87 -0.5%
S&P 500: 5,011 -11.09 -0.2%
|
YTD
+0.2%
-6.0%
-2.4%
+3.9%
+5.1%
|
 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 04/18/2024
Indus: 37,775 +22.07 +0.1%
Trans: 14,947 -39.62 -0.3%
Utils: 860 +6.95 +0.8%
Nasdaq: 15,602 -81.87 -0.5%
S&P 500: 5,011 -11.09 -0.2%
|
YTD
+0.2%
-6.0%
-2.4%
+3.9%
+5.1%
| |
|
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 | ||
Pivot Point Reversal, Downtrend
|
| Characteristic | Discussion |
| 1 bar | The pattern is composed of one price bar. |
| Downtrend | Look for the pattern in a short-term down trend. |
| Close | The close must be above the prior day's high. |
| Trading Tactic | Explanation |
| Reversal | The pattern is supposed to act as a reversal of the up trend, and it does, but only 31% of the time in a bull market. |
| Buy/Short | Once price closes above the top or below the bottom of the pattern, buy/short at the open the next day, respectively. |
| Measure rule | The pivot point reversal fulfills the measure rule 77% of the time (bull market, up breakout). That is, measure the height of the pattern and add it to the high price to get an upward target or subtract it from the intraday low to get a downward price target. |
For the following statistics, I used 1,125 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 used one every 25 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 pivot point 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 pivot point reversal and the same peak/valley test after the pivot point reversal. The closest valley or peak before the pivot point reversal is where the trend began. The closest peak or valley after the pivot point reversal is where the trend ended. I compared the peak or valley to the average of the high and low price of the pivot point reversal pattern (2nd day).
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 breakout (opening price) to the nearest trend peak or trend valley.
To determine the inbound price trend (I was looking for a down trend), I used linear regression on the average of the high-low prices in the ten days before the pattern. That caught the short-term trend.
| Market/Breakout direction | 5% Failure | Average Rise/Drop |
| Bull market, up breakout | 43% | 7% |
| Bull market, down breakout | 48% | -7% |
| Bear market, up breakout | 34% | 9% |
| Bear market, down breakout | 29% | -12% |
Table 1 lists failure rates, sorted by market condition and breakout direction along with the average rise or decline.
A failure occurs when the stock moves less than 5% in the breakout direction.
The failure rates may appear high, but that's typical for short-term patterns like the pivot point reversal. The highest failures occur in a bull market.
| Market/Breakout direction | Success |
| Bull market, up breakout | 77% |
| Bull market, down breakout | 73% |
| Bear market, up breakout | 70% |
| Bear market, down breakout | 77% |
Table 2 shows how often the measure rule works. Use the measure rule to estimate of how far price is likely to rise or drop.
To do this, measure from the high to the low in the pattern to get the height. Add the height to the high or subtract it from the low to get the target.
| Market/Breakout direction | Bull/Up | Bull/Down | Bear/Up | Bear/down |
| Net profit/loss | $71.03 | $(55.99) | $(107.41) | $72.57 |
| Wins | 56% | 45% | 44% | 53% |
| Winning trades | 5,515 | 2,351 | 931 | 698 |
| Average gain of winners | $703.10 | $743.59 | $719.65 | $766.38 |
| Losses | 44% | 55% | 56% | 47% |
| Losing trades | 4,292 | 2,915 | 1,189 | 625 |
| Average loss | ($741.15) | ($700.86) | ($755.01) | ($702.27) |
| Average hold time (calendar days) | 28 | 26 | 16 | 13 |
Table 3 shows the performance based on 18,627 trades using $10 commissions per trade ($20 round trip), starting with $10,000 per trade. No other adjustments were made for interest, fees, slippage and so on.
Here's the setup.
For example, in a bull market after an upward breakout, the net gain was $71.03 for all trades. The method won 56% of the time and there were 5,515 winning trades. The average gain of winning trades was $703.10.
Forty-four percent, or 4,292 trades were losers. They lost an average of $741.15.
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.
The figure shows a pivot point reversal pattern in 3M (MMM) on the daily scale, at A.
The short-term price trend is downward just before the pivot point reversal. At A, the stock closes above the prior day's high, confirming the reversal.
At B, the stock stages a breakout. Buy at the open the next day, C.
When price climbs 7% above the buy price, sell. I don't show that on the chart.
A stop placed 7% below the buy price would stop out the trade in case of a reversal. I don't show that either. Go figure.
-- Thomas Bulkowski
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111,111,111 x 111,111,111 = 12,345,678,987,654,321
on 