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 | ||
Wide Ranging Day Downside Reversal
|
| Characteristic | Discussion |
| 1 bar | The pattern is composed of one bar. |
| Uptrend | Look for the pattern in a short-term upward trend. |
| Close | The close must be within 25% of the intraday low. |
| Wide Range | Look for an unusually tall price bar. For testing, I used a high-low range on the reversal day that was at least three times the one-month average. |
| Trading Tactic | Explanation |
| Reversal | The pattern is supposed to act as a reversal of the upward trend, and it does, but only 43% of the time in a bull market. In other words, look for price to continue upward most often. |
| Buy | Once price closes above the top of the pattern or below the bottom of it, buy/short at the open the next day, respectively. |
| Measure rule | The wide ranging day downside reversal fulfills the measure rule only 42% of the time (bull market, up breakout). That is, measure the height of 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 1,138 stocks, starting from January 1990 to March 2013, but few stocks covered the entire range. All stocks had a minimum price of $5. 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 wide ranging day downside 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 5 days (11 days total) each, before the wide ranging day downside reversal and the same peak/valley test after the wide ranging day downside reversal. The closest valley or peak before the wide ranging day downside reversal is where the trend began. The closest peak or valley after the wide ranging day downside reversal is where the trend ended. I compared the peak or valley to the average of the high and low price of the wide ranging day downside reversal pattern (2nd day).
The 5-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 five 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 | 43% | -7% |
| Bear market, up breakout | 44% | 10% |
| Bear market, down breakout | 28% | -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 fails to move in the direction of the breakout more than 5%.
The failure rates may appear high, but that's typical for short-term patterns like the wide ranging day downside reversal.
| Market/Breakout direction | Success |
| Bull market, up breakout | 42% |
| Bull market, down breakout | 30% |
| Bear market, up breakout | 31% |
| Bear market, down breakout | 33% |
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 | $92.04 | $(35.77) | $8.32 | $(33.63) |
| Wins | 58% | 46% | 53% | 47% |
| Winning trades | 457 | 955 | 67 | 166 |
| Average gain of winners | $715.68 | $757.06 | $683.23 | $778.41 |
| Losses | 42% | 54% | 47% | 53% |
| Losing trades | 328 | 1,114 | 59 | 186 |
| Average loss | ($776.87) | ($715.43) | ($758.10) | ($758.35) |
| Average hold time (calendar days) | 29 | 24 | 20 | 14 |
Table 3 shows the performance based on 3,357 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 $92.04 for all trades. The method won 58% of the time and there were 457 winning trades. The average gain of winning trades was $715.68.
Forty-two percent, or 328 trades were losers. They lost an average of $776.87.
The average hold time was 29 calendar days.
Notice how the gains and losses were pegged near 7%, which is how the test was setup.
The figure shows the wide ranging day downside reversal at A.
Price rises in the days leading to the wide ranging day. Price opens at the top of the day in this example and closes near the intraday low, making a very tall price bar.
It takes several days for price to close below the bottom of the wide ranging day, but it finally happens at B.
Short at the open of the next bar, C.
Not shown is a 7% profit target or 7% stop loss, both based on the entry price.
-- Thomas Bulkowski
Below are other short patterns...
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