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 | ||
Initial release 6/7/2018. Patternz version 7.3 has this pattern implemented.
To determine the configuration of the best performing bearish fakey, I ran tests. This article describes what I found.
I was introduced to a fakey pattern in an email in May 2018, so I did some investigating. The version of the bearish fakey, as I have implemented it, has been tuned for performance. By that, I mean I tested the last two bars of the pattern (leaving the inside day alone) and tried various combinations of high and low to see which variation worked best.
The improved bearish fakey shown in the picture below is the best performing with the lowest failure rate I found.
Improved Bearish Fakey
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The above numbers are based on 3,977 perfect trades. See the glossary for definitions.
The picture on the right shows a version of the traditional bearish flakey pattern.
I couldn't find any specific configuration for the pattern, just general pictures. I show all candles in shades of gray because of the lack of details. The candles could be white or black.
The size of these candles, their color, their position in relation to each other may have been defined by someone, somewhere, but I couldn't find it. So the figure is a generic representation of the traditional bearish fakey.
Candles 1 and 2 make up the inside day pattern. That is, candle 2 fits inside the high-low range of candle 1. You'll often see candle 1 as black and candle 2 as white, but they can be either color.
Candle 3 shows a strong upward thrust. Often this candle is portrayed as white (bullish, with a close above the day's open) and tall.
Candle 4 is the reversal of the upward thrust. I write "thrust" for both candles 3 and 4 (instead of breakout) because of the lack of configuration details on the pattern. Often this candle is portrayed as black and tall.
Do NOT use this picture to define where the open-high-low-close prices should be in relation to the other candles. Again, I found no rules for that.
I used daily price data in 519 stocks from January 1, 2010 to 6/5/2018 in the test. Not all stocks covered the entire period. I set a minimum price of $3 for each trade.
I found 3,977 trades during that bull market run.
I tested the configuration of the last two candles in the pattern and ignored the inside day pattern (the first two candles). As long as price on day 2 was inside the high-low range of day 1, that was fine with me (ties not allowed).
I tested 7 variations of price, moving the last two candles up and down versus the high-low range of candles 1. I did not care about candle color nor the height of any price bar.
Rather, I focused on the high to high and low to low relationship of the candles.
For example, I asked was candle 3's high above candle 1 and it's low below the low of candle 1?
I measured performance from the bottom of the pattern to the ultimate low. The ultimate low is the lowest price the stock reaches before rising either 20% or above the top of the chart pattern, measured low to close.
Thus, the measure is a representation of perfect trades. However, it does allow a trader to compare one chart pattern to another, regardless of stop loss, exit strategies, and so on.
If you wish to review the data, you can download the Excel spreadsheet here (~ 1 mb). The tests assume you've tested for the first two bars, an inside day.
The table refers to the picture on the right. Here is how to identify an improved bearish fakey. In essence, it's a four-day upward price trend that ends with the last candle in the pattern.
If price continues higher, then it's not an improved bearish fakey. Price has to drop below the bottom of the pattern to be valid. I'll explain this in trading tactics.
| Characteristic | Discussion |
| Inside day | The high of day 1 is above the high of day 2. Low of day 1 is below the low of day 2. Price ties not allowed (not tested, actually). |
| Candle 3 | The high of day 3 is above the high of day 1. The low of day 3 is above the low of day 1. |
| Candle 4 | The low of day 4 is above the low of day 3. The high of day 4 is above the high of day 3. |
| Confirmation | If price rises above the top of day 4, it's not an improved bearish fakey pattern. Price must first drop below the low of day 1 to be a valid bearish fakey pattern. |
| Candle color | Not tested |
| Candle height | Not tested |
| Inside day | Configuration not tested, only that day 2 fits inside the high-low range of day 1. |
Place an order to short the stock a penny below the bottom (low) of candle 1. For example, if candle 1 has a low price of $9.57, then place the order at $9.56.
I show the entry in the figure on the right as a thin green line (the confirmation line, but the actual price should be slightly below candle 1).
If price rises above the high of day 4, cancel the order. You're not looking at a bearish fakey. Chances are, price will continue rising.
In my review of this pattern, too many pattern see price continue higher. That's why price must reverse (move lower) immediately after candle 4.
I show failure of the potential pattern as the thin red line in the figure. If price pierces this line after candle 4 (and before dropping below candle 1), then it invalidates the bearish fakey.
This pattern has a very high failure rate: 56%. That means more than half of all patterns will see price drop less than 5% below the bottom of the bearish fakey before reversing and closing above the top of the pattern.
Also, consider looking for bearish fakey patterns which bump up against a ceiling of resistance, or test the price trend leading to the start of the pattern (that is, a rising or falling inbound trend). I haven't evaluated any of these situations in my analysis of the bearish fakey.
This is a chart showing a bearish fakey pattern. It's highlighted in the inset. The first two bars of the pattern comprise an inside day. Following that, price moves higher, having a high and low above the high and low of Day 1. Day 4 (A) follows day 3 and posts an even higher high-low pair, compared to the prior day.
The pattern becomes valid when price drops below the bottom of the pattern. That signals an entry. I show the entry price as the horizontal red line at B.
In this example, price continues dropping until reaching the ultimate low at C.
-- Thomas Bulkowski
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