As of 02/21/2025
Indus: 43,428 -748.63 -1.7%
Trans: 16,034 -430.64 -2.6%
Utils: 1,023 +3.75 +0.4%
Nasdaq: 19,524 -438.35 -2.2%
S&P 500: 6,013 -104.39 -1.7%
|
YTD
+2.1%
+0.9%
+4.1%
+1.1%
+2.2%
|
 42,500 or 45,000 by 03/01/2025 16,900 or 15,800 by 03/01/20251,050 or 970 by 03/01/202519,200 or 20,500 by 03/01/20255,875 or 6,200 by 03/01/2025 |
As of 02/21/2025
Indus: 43,428 -748.63 -1.7%
Trans: 16,034 -430.64 -2.6%
Utils: 1,023 +3.75 +0.4%
Nasdaq: 19,524 -438.35 -2.2%
S&P 500: 6,013 -104.39 -1.7%
|
YTD
+2.1%
+0.9%
+4.1%
+1.1%
+2.2%
| |
|
42,500 or 45,000 by 03/01/202516,900 or 15,800 by 03/01/20251,050 or 970 by 03/01/202519,200 or 20,500 by 03/01/20255,875 or 6,200 by 03/01/2025 | ||
Initial release: 2/11/25.
This article discusses the bearish 2-close reversal chart pattern, including what to look for and how it behaves in stocks, exchange traded funds, and cryptocurrency.
This chart pattern is supposed to be bearish (65% breakout downward) but downward breakouts in stocks resulted in the average trade losing money, regardless of the direction of the inbound price trend (either up or down).
I tested this pattern using upward breakouts (bullish scenario). I found inconsistent results (minor gains or underperformance).
The pattern acts as a bearish reversal, but price doesn't trend after the pattern ends. I'd avoid trading using this pattern.
The following table shows the identification rules, and are self-explanatory. Also refer to the adjacent chart.
| Characteristic | Discussion |
| Three Bars | This pattern is three price bars long. |
| Bar 1 | Any price bar. |
| Bar 2 | Price makes a higher high (above bar 1), and closes above bar 1's close. |
| Bar 3 | Price posts a higher high (above bar 2's high), but closes below bar 1's close. The red line in the figure shows a close below the prior two bars. |
| Breakout | Breaks out downward 65% of the time in stocks, but I tested it with upward breakouts only (for this article). |
| Downward Breakout | This pattern is bearish, but it doesn't result in price trending. The average trade lost $63.66 up an uptrend and $78.57 when it appears in a downtrend. |
For tests in stocks, ETFs, and cryptocurrency, I used these rules.
The chart shows a sample trade in DDD using a bearish 2-close reversal with an upward breakout (highlighted in the red box). Entry occurs on the breakout day (obscured by the red box). The stock climbs for a time, but then drops. It reverses (to up) just above the price of the stop loss order. The order remains in place.
The stock recovers and triggers the limit order at the target exit for a profitable trade.
The following tables shows results for bull markets with upward breakouts and an inbound price trend either up or down. I used 489 stocks in the test.
| Metric | 2-Close In Up Trend | Up Trend Benchmark | 2-Close In Down Trend | Down Trend Benchmark |
| Trades | 3,705 | 5,877 | 3,199 | 5,278 |
| Average profit/loss per trade | $56.52 | $73.54 | $92.77 | $83.91 |
| Win/loss ratio | 40% | 41% | 42% | 42% |
| Average hold time (days) | 17 | 21 | 17 | 21 |
| Winning trades | 1,482 | 2,400 | 1,338 | 2,212 |
| Average gain of winners | 8% | 8% | 8% | 9% |
| Average hold time of winners (days) | 23 | 27 | 25 | 28 |
| Losing trades | 2,223 | 3,477 | 1,861 | 3,066 |
| Average loss | -4% | -5% | -4% | -5% |
| Average hold time of losers (days) | 15 | 17 | 15 | 18 |
The bearish 2-close reversal underperforms the benchmark in uptrends, but outperforms in downtrends. Because of the uneven performance, I'd be cautious trading using this pattern.
I show a sample trade in iShares U.S. Aerospace & Defense ETF (exchange traded fund, ITA).
Three days after the patterns ends, we have an upward breakout (meaning we buy the stock). However, the slight uptrend reverses, eventually triggering the stop loss order for a losing trade.
The following table shows the results of 94 exchange traded funds (ETFs) instead of common stocks, using the same testing methodology.
| Metric | 2-Close In Up Trend | Up Trend Benchmark | 2-Close In Down Trend | Down Trend Benchmark |
| Trades | 1,274 | 6,792 | 908 | 5,700 |
| Average profit/loss per trade | $48.23 | $68.94 | $52.20 | $68.34 |
| Win/loss ratio | 42% | 44% | 42% | 43% |
| Average hold time (days) | 14 | 21 | 14 | 21 |
| Winning trades | 541 | 2,966 | 382 | 2,469 |
| Average gain of winners | 5% | 6% | 6% | 6% |
| Average hold time of winners (days) | 20 | 27 | 26 | 32 |
| Losing trades | 733 | 3,826 | 526 | 3,231 |
| Average loss | -3% | -3% | -3% | -4% |
| Average hold time of losers (days) | 12 | 17 | 13 | 19 |
The pattern in ETFs can't beat the benchmark for average profit per trade, regardless of the inbound price trend. Avoid trading this pattern in ETFs.
I show the bearish 2-close reversal in cryptocurrency AAVE versus the US dollar. Breakout is upward the day after the pattern ends, so we buy a position. The currency reverses and triggers the stop loss order, cashing us out for a loss.
| Metric | 2-Close In Up Trend | Up Trend Benchmark | 2-Close In Down Trend | Down Trend Benchmark |
| Trades | 94 | 393 | 129 | 391 |
| Average profit/loss per trade | $296.56 | $224.62 | $27.75 | $209.61 |
| Win/loss ratio | 49% | 48% | 37% | 45% |
| Average hold time (days) | 9 | 9 | 9 | 9 |
| Winning trades | 46 | 187 | 48 | 175 |
| Average gain of winners | 13% | 12% | 11% | 13% |
| Average hold time of winners (days) | 7 | 10 | 7 | 11 |
| Losing trades | 48 | 206 | 81 | 216 |
| Average loss | -6% | -7% | -6% | -6% |
| Average hold time of losers (days) | 8 | 7 | 8 | 7 |
The $27.75 average gain in downtrends is not a typo. Even though uptrends do well, such underperformance in downtrends leads me to believe substantially more samples are needed to adequately test this pattern using cryptocurrency.
-- Thomas Bulkowski
Other 3-bar patterns
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