Subscribe to RSS feeds Bulkowski Blog via RSS

Thomas Bulkowski’s successful investment activities allowed him to retire at age 36. He is an internationally known author and trader with 30+ years of stock market experience and widely regarded as a leading expert on chart patterns. He may be reached at

Support this site! Clicking the links (below) takes you to Amazon.com. If you buy ANYTHING, they pay for the referral.

Picture of the Tears for Bumper.
Kindle
Nook
Picture of the head's law.
Kindle
Paperback
Nook
Chart Patterns: After the Buy
Getting Started in Chart Patterns, Second Edition book.
Trading Basics: Evolution of a Trader book.
Fundamental Analysis and Position Trading: Evolution of a Trader book.
Swing and Day Trading: Evolution of a Trader book.
Visual Guide to Chart Patterns book.
Encyclopedia of Chart Patterns 2nd Edition book.

Bulkowski's Vertical Run Down

Class Elliott Wave Fundamentals Psychology Quiz Research Setups Software Tutorials More...
Busted
Patterns
Candles Chart
Patterns
Event
Patterns
Small Patterns
Market
Industrials (^DJI):
Transports (^DJT):
Utilities (^DJU):
Nasdaq (^IXIC):
S&P500 (^GSPC):
As of 05/22/2017
20,895 89.99 0.4%
8,965 85.46 1.0%
709 5.94 0.8%
6,134 49.92 0.8%
2,394 12.29 0.5%
YTD
5.7%
-0.9%
7.5%
13.9%
6.9%
Tom's Targets    Overview: 05/15/2017
21,400 or 20,450 by 06/01/2017
9,500 or 8,700 by 06/01/2017
685 or 720 by 06/01/2017
6,350 or 6,000 by 06/01/2017
2,330 or 2,450 by 06/01/2017

Written by and copyright © 2005-2017 by Thomas N. Bulkowski. All rights reserved. Disclaimer: You alone are responsible for your investment decisions. See Privacy/Disclaimer for more information.

Vertical Run Down: Summary

This article describes findings for a chart pattern that I call a vertical run down. That's when price plunges in a straight line drop, day after day, with little or no overlap between price bars. I provide a few performance statistics in the Results section.

$ $ $

My book, Encyclopedia of Chart Patterns Second EditionEncyclopedia of Chart Patterns 2nd Edition book. pictured on the left, takes an in-depth look at 63 chart and event patterns, including performance statistics. The second edition does NOT include the vertical run down. Sorry.

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

$ $ $

The vertical run down in red
Vertical Run Down (Red)

 

Vertical Run Down: Identification Guidelines

When searching for a vertical run down, follow these guidelines.

CharacteristicDiscussion
Vertical RunPrice moves down in a steep drop for at least four sessions.
OverlapThere is minimal overlap from price bar to bar.
Flag*Price can pause along the vertical run, occasionally multiple times. This pause (which I call a flag, regardless of the shape) happens 6% of the time.

* The only "flag" (congestion area) I searched for was when price failed to make a new low for at least three days. All other types of pauses were ignored.

Vertical Run Down: Results

Results found for vertical run down

The figure on the right shows the results from a study of 2,036 vertical runs in 469 stocks in the three bull markets from July 1995 to January 2014.

After a vertical run ends (black price bars), price continues to climb 46% of the time, completely retracing the drop suffered in the vertical run.

The median (midway) retrace is 81%. Half of the time, price will retrace more and half will retrace less.

Most of the time (84%), the stock will retrace at least a portion of the move down. The other 16% sees price continue dropping but at a slower pace.

Top

Vertical Run Down: Trading Tips

The following table shows trading tactics for the vertical run split into trading styles.

Trading TacticExplanation
Buy and holdThe retrace is short-lived so hold onto existing positions. Since nearly half of all vertical runs retrace the entire drop, don't be shaken out of a vertical run down.
Position tradersJust 20% of vertical runs suffer a trend change (a drop of at least 20%). Thus, position traders should hold onto their stocks, but situations vary.
Swing and day traders: GapsSeventy-five percent of gaps taller than 25 cents are continuation gaps, not exhaustion gaps, in a vertical run down. Ignore any gap before and including the third bar since a valid vertical run down takes four bars. The gap must be at least 25 cents tall. Measure from the start of the vertical run (high price) to the middle of the gap and project that height downward to get a target. The gap will be within 10 percentage points of the middle of the run 41% of the time. So allow a fudge factor.
Swing and day traders: Tall barA tall bar ends the vertical run down within a day 41% of the time. If the 4th or later bar in the vertical run is unusually tall (at least twice the 1-month average height before the vertical run began), the end of the run may be near. Twenty size percent of the time, that long bar ends the run, but 41% of the time, either that tall bar or the next bar ends the run.
Swing and day traders: RetraceAfter bar 4 (meaning a vertical run down has been established) place a buy stop a penny or two above the high of the prior price bar. Trail it lower by placing the stop a penny or two above the high of the prior bar -- never raise the buy stop. When the turn occurs, set a target that is half the distance up the vertical run. This should work 64% of the time. See the below trading example.

Top

Vertical Run Down: Examples

Vertical run example

Shown is a picture of a vertical run down from A to B.

This is how I would trade it. I would go through the identification guidelines to make sure I had a valid vertical run down.

There are at least four price bars in the vertical run and each of them have little overlap.

After bar 4, that is, once the vertical run down has been established, I would use a trailing buy stop. I would place it a penny or two above the prior bar and lower it as each lower high occurred.

For example, when bar C begins forming, I would lower my stop to a penny or two above the high of bar B (shown by line D). When C climbs to the buy stop (D), the trade executes and I buy the stock.

A stop loss should be a penny or two below B and raised as price climbs.

I set the exit target to be midway down the price run. The chart uses the logarithmic scale, so the exit price at E doesn't look midway, but it is. When price reaches that target, the stock sells.

-- Thomas Bulkowski

 

 

Top 

See Also

Written by and copyright © 2005-2017 by Thomas N. Bulkowski. All rights reserved. Disclaimer: You alone are responsible for your investment decisions. See Privacy/Disclaimer for more information. For old timers (Monty Python): You're parrot's not dead. It's sleeping.