As of 12/04/2020
  Indus: 30,218 +248.74 +0.8%  
  Trans: 12,742 +155.26 +1.2%  
  Utils: 856 -10.76 -1.2%  
  Nasdaq: 12,464 +87.05 +0.7%  
  S&P 500: 3,699 +32.40 +0.9%  
YTD
 +5.9%  
 +16.9%  
-2.6%  
 +38.9%  
 +14.5%  
  Targets    Overview: 11/30/2020  
  Up arrow30,700 or 28,250 by 12/15/2020
  Up arrow13,500 or 11,700 by 12/15/2020
  Down arrow830 or 925 by 12/15/2020
  Up arrow12,500 or 11,400 by 12/15/2020
  Up arrow3,750 or 3,400 by 12/15/2020
CPI (updated daily): Arrows on 11/2/20
As of 12/04/2020
  Indus: 30,218 +248.74 +0.8%  
  Trans: 12,742 +155.26 +1.2%  
  Utils: 856 -10.76 -1.2%  
  Nasdaq: 12,464 +87.05 +0.7%  
  S&P 500: 3,699 +32.40 +0.9%  
YTD
 +5.9%  
 +16.9%  
-2.6%  
 +38.9%  
 +14.5%  
  Targets    Overview: 11/30/2020  
  Up arrow30,700 or 28,250 by 12/15/2020
  Up arrow13,500 or 11,700 by 12/15/2020
  Down arrow830 or 925 by 12/15/2020
  Up arrow12,500 or 11,400 by 12/15/2020
  Up arrow3,750 or 3,400 by 12/15/2020
CPI (updated daily): Arrows on 11/2/20

Bulkowski on the Bearish Carl V

 

Initial release: 11/2/2020.

Bearish Carl V: Overview

The bearish Carl V is named after its discoverer, Carl Vanhaesendonck. Mr. Vanhaesendonck lives in Belgium and spent the last two decades trading currencies, futures, and stocks (via CFD, part-time) as a day-trader or occasional swing trader, while maintaining a career as a global business development executive in the medical IT field. Now that he's retired, he's trading almost full time.

He wrote in an email, "I discovered the pattern probably 4-5 years ago, almost noting distractedly the [repetitive] outcome, first thinking 'that was just my imagination.' " He started trading the pattern in earnest this year [2020] and shared his discovery with me. I researched the pattern and below are some of my findings supported by the gracious help of Mr. Vanhaesendonck.

A review of this pattern suggests it's tough to make money trading it using various entry mechanisms, at least for stocks on the daily scale. I tested the Below 3 pattern (after an uptrend, find a peak followed by three price bars which are lower than the peak. Entry at the open on day 4). I also tested buying at 10% to 35% of the way down from D, and using a pivot as an entry. Nothing helped to make this pattern work well.

However, Mr. Vanhaesendonck uses this pattern in the currency market and often for day trading. He writes, "I have been able to make money with it." My analysis used only stocks and on the daily scale. Plus, this pattern is bearish and I tested it in a bull market. He lives and trades from Belgium and I'm in the U.S. In other words, there are plenty of reasons why this pattern didn't work for me, but maybe it will work for you. Besides, his trading method is worth considering. It might give you ideas about how to improve your own trading techniques.

Let me also take this opportunity to thank Carl Vanhaesendonck for sharing his pattern and trading techniques with me.

Bearish Carl V: Bull Market Results

Overall performance rank (1 is best): not ranked*
Break even failure rate: 24%*
Average decline: 14%*
Pullback rate: 63%
Percentage meeting price target: 36% (pattern height subtracted from the high at D)

The above numbers are based on 1,619 perfect trades in bull markets. See the glossary for definitions.

* These numbers are calculated not from the top of the pattern, but from point D (to the ultimate low). This measure better represents how Vanhaesendonck actually trades the chart pattern. He takes a position just after top D forms and rides price lower, often exiting at a target price, not the ultimate low.

Carl V chart pattern
Bearish Carl V

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Bearish Carl V: Identification Guidelines

The XABCD pattern shown in black on the lower right chart represents what an ideal bearish Carl V chart pattern looks like.

The ABCD portion of the bearish Carl V appears similar to a broadening bottom. A line joining AC slopes downward, and a line joining BD slopes upward. Point X may be far away from the pattern and is not part of the broadening shape. The five turns remind me of Fibonacci patterns except that you don't have to spend time calculating the Fibonacci turns.

CharacteristicDiscussion ideal bearish Carl V chart pattern
ShapeLook for a minor high (X) which leads to a broadening pattern where a second valley is below the first (C is below A), and a second peak is above the first (D is above B).
Turn XX is a minor high. If price rises more than the median 15% (the rise from E to X in the chart to the right), you tend to see a better performing pattern (larger drop and almost half the failures).
Turn ATurn A is below X. It's a minor low, the lowest valley between X and A. There must not be a peak higher than X during the drop from X to A.
Turn BPeak B is above the price of A but below X. There must not be a peak above B nor a valley below A on the way from A to B.
Turn CTurn C is priced below A and it's the lowest valley between A and C. There must not be a peak higher than B on the move from B to C.
Turn DTurn D is above the price of B but below X. Again, no peak should be higher than D or a valley below C during the move from C to D.

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Bearish Carl V: Trading Tips

The following is what I learned from crunching the numbers using data from September 1992 to October 2020, finding 4,300 chart patterns in both bull and bear markets, with up and down breakouts. The results which follow apply only to bull markets.

Just over half the time (54%), price breaks out upward. An upward breakout means price closes above X (the top of the pattern) before it closes below C (the bottom of the pattern). However, we're interested in shorting a stock as price drops from D. That's what we'll focus on below.

Trading TacticExplanation Carl V chart pattern
Measure Rule
Measure ruleReference the 'Measure Rule' figure to the right. Compute the height of the chart pattern from the highest peak (X) to the lowest valley (C). Subtract the result from the high price of turn D. Price reaches target E 36% of the time in bull markets.
Continuations BestIf the Carl V acts as a continuation of the downward price trend (price trends lower going into peak X), performance improves and failures drop.
Move After DSee the 'Move After D' chart on the right. As price drops from D on its way to G, 6% of the time it never makes it down to B. The other 94% drop to the price of B. After that, 54% make it to A and 39% make it to C. These percentage give you an idea how price behaves after D. Carl V chart pattern
Move After D
EntryThe challenge to trading this chart pattern is to determine when turn D is in place. My computer program used a window of 3 lower price bars on either side of a peak (7 bars total) to qualify D as a peak. You can use something similar (If price doesn't make a high above D for 3 price bars, then you've found D). Vanhaesendonck uses a better approach. He takes 25% of the pattern's height (X to C) and subtracts that from the high price at D. A trading order placed at that target price will get you in. I did try finding a pivot above B and below X but that tested worse, even with/without entering from 10% to 35% down from D. Pivot tests compare various short-term reversal patterns which may help determine when D is in place. The pattern I use is what I call Below 3. Turns out the pattern performs best out of ten patterns studied.

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Bearish Carl V: How Vanhaesendonck Trades

Carl V chart pattern example

Reference the chart on the right but note it's not drawn to scale. The black line which turns red is price. The bearish Carl V is XABCD. The horizontal blue lines are various percentages of the XC distance subtracted from the high at D.

Vanhaesendonck has a short sale order waiting for price to drop to the 25% level. He enters the trade there, which confirms peak D as price turns downward. He places a stop-loss order slightly above peak D.

Price drops. If it reaches the 50% value, he'll lower the stop to breakeven (slightly lower than 25% to cover the cost of trading).

If price drops to 100%, he scales out of half of the position. When price hits 200% of the height of the pattern (twice XC height), he closes out the trade.

If price doesn't reach 200%, he'll close out the trade if it closes above a pivot. I'll discuss pivots in a moment.

Here are his trading rules.

  1. If price drops to 25% (a quarter of the pattern's height subtracted from D), enter short.
  2. If price hits the 25% value below the peak at D, on the same day, and you're day trading, enter a short on the next price bar. For daily charts, short when price crosses the 25% line, going down.
  3. Place a stop loss order a penny or two above the price of D.
  4. From here on, if price closes above a pivot, close out the short.
  5. If price drops to the 50% target (half pattern's height subtracted from D), move stop to breakeven (just below 25% target).
  6. If price reaches the full height target (100%), sell half of the position.
  7. If price reaches the 200% target, close out the short.

The example trade shows how this would work using AFLAC stock.

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Bearish Carl V: Pivot Exit

Carl V chart pattern example

Here's how Vanhaesendonck exits the trade using a pivot (see the figure on the right).

Assume you've shorted a stock before pivot E.

If price makes a pivot (price makes a higher high and a higher low, price bar A compared to B) followed by a lower low (D is below B), place an order to close out the trade a penny above the pivot high (a penny above A).

If a lower pivot appears, move your stop to the new, lower pivot using the same technique.

For example, let's assume you have a stop a penny above pivot E. When do you lower your stop to the next lower pivot? Pivot A forms. When price makes a lower low (D is below B) lower the stop to a penny above A.

If price reaches your target, close out the trade. If it fails to reach your target and starts climbing, the nearest pivot high will close out the trade when price rises above the top of the pivot and trips the stop-loss order (C).

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Bearish Carl V: Improving Performance

Here are a list of tips to improve the performance of the bearish Carl V. This is based on in-sample tests of the chart pattern which are confirmed using out-of-sample data.

In the example shown in the adjacent chart, the bearish Carl V begins at X and ends at D. The trend begins at E and drops to the ultimate low at F.

I don't think the following bullets are additive. That means you probably won't get a better performing pattern if a number of these elements are true (but I could be wrong). What follows is a bearish Carl V in Occidental Pet which does very well and has a number of positives going for it.

Carl V chart pattern example

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Carl V chart pattern example

Bearish Carl V Example: AFLAC (AFL)

This is an example of how to use Vanhaesendonck's rules to trade the stock shown to the right.

Peak D1 is above B and below X, so assume it is the D peak. Compute the 25% entry price and find that X is priced at a high of 11.28, and C is at a low of 9.38, for a height of 1.90. A quarter (25%) of this is 48 cents. Subtracting 48 cents from the peak at D1 (11.17) gives an entry price of 10.69. The day after D1, the stock made a low of 10.81, remaining above the 10.69 entry price.

At D, the stock made a higher peak, it's between X and B, so assume this is turn D. The peak at D is at 11.27 so 48 cents below this (25% of the XC height) is 10.79. As the chart shows, price dropped below the 10.79 price when it reached a low of 10.65 at D.

If you're day trading the stock (this is a daily chart, not intraday), you'd enter the trade sometime during bar D (when the stock dropped below the 25% entry price).

On the daily chart, wait for price to drop below the 25% line after D.

In this case, the day after D the stock dropped to a low of 10.86, remaining above the 25% entry price of 10.79. However, the next day the trade would trigger so you'd short the stock.

Place a stop-loss order a penny or two above the peak at D.

When the stock reached 50% of the XC height subtracted from D, lower the stop-loss order to just below the 25% value (breakeven). The 50% number is half the pattern's height subtracted from the peak at D.

The stock continued down in a strong push lower, eventually reaching the target of 100%. That's the pattern's height subtracted from the price of the D peak. At this point, close out the trade on half of the position.

Price continued lower but bounced and formed a pivot at E. Bar E has a higher high and higher low than the prior price bar, so it's a pivot. When price makes a new low (G), drop the stop-loss order to a penny above the price at E.

In this example, the stock resumed the downtrend.

At F, it made a lower priced pivot, the stock made a lower low at H, so drop the stop-loss order to a penny above the high price at F.

After reaching bottom the stock bounced and triggered the stop to cover the short as shown on the chart. In this example, you would sell just a day after price reached the ultimate low. That's terrific timing.

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Bearish Carl V: Entry and Exit Testing

I ran the bearish Carl V pattern through various tests, trying to find the best entry mechanism, which I show in Table 1. The results that follow are from out-of-sample tests which avoid curve fitting. They are on stocks, daily scale, from companies I no longer follow or no longer trade. Few use current prices. That may help explain why my results differ from what Vanhaesendonck sees in his trading.

Bearish Carl V: Entry Tests

Table 1 Summary: Table 1 shows that the closer you buy to peak D, the more you can make. Common sense, really. Only the bearish pivot entry resulted in a profit. The bearish pivot is a 3-bar pattern. Price at the peak has a higher low and higher high than the prior price bar. The following day, price drops (a lower high). Enter at the open the following day.

The payoff ratio is the ratio of average winning trade to the average losing trade. The mathematical expectancy according to Vanhaesendonck is 100 x ((Winner % x payoff ratio) - Loser %). If a system has a payoff ratio of 70%, and wins 60% of the time, the ME would be 100 x (.60 x .70) - .40) or 41.6. He looks for values above 30 for stable systems.

The tests follow the rules described above for how Vanhaesendonck trades.

Table 1: Test Results for Entry
Test Description% WinProfit/LossPayoff
Ratio
Mathematical
Expectancy
1. 110-120% plus pivot entry35%($.02)178%-4
2. Bearish pivot entry31%$.03227%1
3. Below 3 pattern35%($.17)128%-19
4. 10% down24%($.06)291%-7
4. 15% down25%($.21)210%-21
4. 20% down30%($.23)168%-21
4. 25% down35%($.26)124%-21
4. 30% down42%($.27)91%-19
4. 35% down46%($.33)71%-21

Table notes

Test 1: Testing found that there was a performance peak in the DC/BC extension around 115%, so I checked to see if it gave an advantage for finding peak D. The test used an entry as 110% to 120% extension of the DC to BC move plus a pivot to mark peak D. Enter 2 days after peak D (one day to confirm the pivot and entry is at open the next day).

Test 2 is the same as test 1 except I don't look for an extension. I look for a bearish pivot located between peaks B and X (which is the same as test 1). The first day after a peak confirms the pivot and entry is at the open the next day.

Test 3 looks for a Below 3 pattern (a peak followed by 3 price bars with highs below the peak. Enter on day 4).

Test 4: This uses a pivot to find peak D and takes various percentages of the XC height down from D as the entry price. I tested various entry percentages from 10% to 35%.

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Bearish Carl V: Exit Tests

I didn't try different exit rules. Rather the percentages show how each of the entry mechanisms worked with Vanhaesendonck's trading rules.

Table 2: Test Results for Exit
Test DescriptionTest 1Test 2Test 10%Test 15%Test 20%Test 25%Test 30%Test 35%
Percentage dropped 50% of XC Height below D37%33%34%36%40%47%53%62%
Percentage dropped 100% of XC height below D10%9%12%11%12%12%14%16%
Sold at 200% of XC height (exit target)1%2%2%2%2%2%2%3%
Stopped out above D56%59%60%56%50%41%36%28%
Pivot stop25%22%32%31%32%34%32%30%
Breakeven stop17%17%7%11%16%22%30%38%

Table 2 Summary: The tests reveal that the farther down from D you enter, the more likely price will reach the 50% target. Few stocks will reach the 100% target and even fewer will reach the exit signal at 200% down. Most trades will see price reverse quickly and rise above D, hitting the stop-loss order there.

Table notes

The "Percentage dropped 50% of XC Height below D" tells how many trades dropped to the 50% target (that's 50% of the XC height subtracted from the high price at D).
"Percentage dropped 100% of XC height below D" This is the same as the prior row except the target is the pattern's height subtracted from D.
"Sold at 200% of XC height (exit target)." The 200% height target is the exit signal. As the table shows, few stocks see price drop that far.
"Stopped out above D." This tells how often price reverses and climbs above D, forcing an exit from the trade.
"Pivot stop." This shows how many trades are stopped out by a pivot.
"Breakeven stop." If price drops to the 50% target, the stop is moved to breakeven. The table shows how many get stopped out when price returns to the 25% target.

-- Thomas Bulkowski

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See Also

 

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My novels:  Bumper's Story Head's Law

Chart Patterns: After the Buy Getting Started in Chart Patterns, Second Edition Trading Basics Fundamental Analysis and Position Trading Swing and Day Trading Visual Guide to Chart Patterns Encyclopedia of Candlestick Charts Encyclopedia of Chart Patterns 2nd Edition Trading Classic Chart Patterns

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