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%	Targets    Overview: 09/13/2024     42,000 or 40,100 by 10/01/2024   16,200 or 15,300 by 10/01/2024   1,100 or 1,000 by 10/01/2024   18,400 or 16,650 by 10/01/2024   5,750 or 5,400 by 10/01/2024
Chart Pattern Indicator: on 9/11/24

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%
Targets    Overview: 09/13/2024     42,000 or 40,100 by 10/01/2024   16,200 or 15,300 by 10/01/2024   1,100 or 1,000 by 10/01/2024   18,400 or 16,650 by 10/01/2024   5,750 or 5,400 by 10/01/2024
Chart Pattern Indicator: on 9/11/24

Bulkowski on Downside Weekly Reversals

(Also called Weekly Reversal Top)

For more information on this pattern, read Encyclopedia of Chart Patterns First Edition, (a later edition is pictured), pages 631 to 641. Below is updated performance information based on tests in February 2013. Also note that this pattern is only in the first edition of the Encyclopedia.

If you click on the above link and then buy the book (or anything) while at Amazon.com, the referral will help support this site. Thanks.

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Important Results Identification Guidelines Trading Tips Example Performance Statistics Failure Rates Measure Rule Trading Performance Trading Performance with Pattern Stop Trading Example See Also

Downside Weekly Reversal

Downside Weekly Reversals: Important Bull Market Results

Downside Weekly Reversal: Identification Guidelines

Downside Weekly Reversal: Trading Tips

Downside Weekly Reversals: Example

I show three downside weekly reversals on the weekly chart.

Notice that in each pattern, the second bar is taller than the prior bar. If this were on the daily scale, the pattern would resemble an outside day.

The first downside weekly reversal occurs in January after a long up trend. The reversal correctly predicts a downward move.

The second pattern, in August, acts in a manner similar to the first one. The inbound trend is upward and price breaks out downward.

The last pattern, in October, sees price move sideways. Not shown, but the breakout from this downside weekly reversal is upward because price closes above the top of the pattern in February 2011.

Downside Weekly Reversals: Performance Statistics

For the following statistics, I used 1,234 stocks, starting from December 1989 to December 2012, 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 downside weekly reversal, I found where 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 bars (11 bars total) each, before the downside weekly reversal and the same peak/valley test after the downside weekly reversal. The closest valley or peak before the downside weekly reversal is where the trend began. The closest peak or valley after the downside weekly reversal is where the trend ended.

Since this is a downside weekly reversal, I excluded all of those patterns with a downward price trend. That is, I only used those appearing after an upward price trend on the weekly chart.

The 5-bar peak or valley number tends to find major turning points on the weekly charts. In this case, 'bar' means week since I only used weekly data.

I measured performance from the breakout price (the second week's high or low in the pattern, depending on the breakout direction) to the nearest trend peak or trend valley after the breakout.

Table 1 shows the performance of downside weekly reversals from the breakout to the trend high or trend low, sorted by the breakout direction and market type.

For example, those downside weekly reversals in a bear market after a downward breakout perform best by losing 26%. The worst performance comes in a bull market after a downward breakout (a loss of 12%). This makes sense. When the trade is in line with the primary trend (bull market, up breakout or bear market, down breakout) the pattern outperforms the counter trend moves.

Downside Weekly Reversals: Failure Rates

Table 2 lists the failure rates, sorted by market condition and breakout direction along with the average rise or decline after the breakout.

A failure occurs when the stock fails to move more than 5% in the direction of the breakout.

For example, in a bull market after an upward breakout, 16% of the downside weekly reversals failed to see price rise at least 5%. However, the average rise was 18%.

Downside Weekly Reversals: Measure Rule

Table 3 shows how often the measure rule works. Use the measure rule to find an estimate of how far price is likely to move.

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 for an upward breakout.

For downward breakouts, subtract the height from the lowest low in the pattern. Ignore price predictions below 0 and those that represent a large percentage move.

The table says that the measure rule works best in a bull market after an upward breakout (72% work), but the bear market/down breakout combination is close (70% work).

Downside Weekly Reversal: Trading Performance

Table 4 shows the performance based on 8,430 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, up or down breakouts. The trades used the same setup as listed in Downside Weekly Reversals Performance Statistics.

Here's the setup.

• Find a downside weekly reversal
• If price closes above the pattern's high, buy at the open the next day.
• If price closes below the pattern's low, short at the open the next day.
• Sell/cover when price moves 7% in the direction of the breakout.
• If price moves 7% in the direction opposite the breakout, close out the trade for a loss.

For example, in a bull market after an upward breakout from a downside weekly reversal, the net gain was $132.39 for all trades. The method won 60% of the time and there were 1,624 winning trades. The average gain of winning trades was $726.93.

Forty percent, or 1,087 trades were losers. They lost an average of $755.87.

The average hold time was 36 calendar days.

Downside Weekly Reversal: Trading Performance With Pattern Stop

Table 5 shows the results of 8,420 trades, but this time, a penny below the bottom of the downside weekly reversal pattern (upward breakout) or a penny above the top of the downside weekly reversal pattern (downward breakout) was used as a stop instead of a 7% stop.

In all cases, the average loss increased substantially. Net profit and net loss both increased slightly as did the win/loss ratio when compared to a 7% stop.

Downside Weekly Reversal: Trading Example

The figure shows a downside weekly reversal pattern in Alcoa on the weekly scale.

The downside weekly reversal begins the week before prices peak on the chart (A).

After the pattern ends, the red line shows the entry price, which is the opening price the week after a closes below the bottom of the chart pattern. In this case, that's 13.76 (on candle B).

The target is 7% below this, or 12.80.

The red sell line shows the exit location (marked 'Cover').

If the stock reversed before reaching the target, a stop placed 7% above the buy price would have closed out the trade. Alternatively, a stop placed a penny above the top of the pattern would work as a pattern stop.

-- Thomas Bulkowski

See Also

• The outside day is similar to the downside weekly reversal.
• Upside weekly reversals are the opposite of the downside weekly reversal.

Below are other short patterns...

• Inverted gap2H
• Outside Days
• Inside Days
• Shark-32

I have flabby thighs, but fortunately my stomach covers them.