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 | ||
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.
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Vertical Run Down (Red)
|
When searching for a vertical run down, follow these guidelines.
| Characteristic | Discussion |
| Vertical Run | Price moves down in a steep drop for at least four sessions. |
| Overlap | There 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.
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.
The following table shows trading tactics for the vertical run split into trading styles.
| Trading Tactic | Explanation |
| Buy and hold | The 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 traders | Just 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: Gaps | Seventy-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 bar | A 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: Retrace | After 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. |
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
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