As of 01/17/2025   Indus: 43,488 +334.70 +0.8%     Trans: 16,431 -169.75 -1.0%     Utils: 1,013 +1.53 +0.2%     Nasdaq: 19,630 +291.91 +1.5%     S&P 500: 5,997 +59.32 +1.0%	YTD  +2.2%    +3.4%    +3.0%    +1.7%    +2.0%	Targets    Overview: 01/15/2025     44,700 or 41,600 by 02/01/2025   17,200 or 15,700 by 02/01/2025   1,050 or 950 by 02/01/2025   20,500 or 18,670 by 02/01/2025   6,100 or 5,700 by 02/01/2025
Chart Pattern Indicator: on 1/13/25

As of 01/17/2025   Indus: 43,488 +334.70 +0.8%     Trans: 16,431 -169.75 -1.0%     Utils: 1,013 +1.53 +0.2%     Nasdaq: 19,630 +291.91 +1.5%     S&P 500: 5,997 +59.32 +1.0%	YTD  +2.2%    +3.4%    +3.0%    +1.7%    +2.0%
Targets    Overview: 01/15/2025     44,700 or 41,600 by 02/01/2025   17,200 or 15,700 by 02/01/2025   1,050 or 950 by 02/01/2025   20,500 or 18,670 by 02/01/2025   6,100 or 5,700 by 02/01/2025
Chart Pattern Indicator: on 1/13/25

Bulkowski on the Open-Close Reversal, Downtrend Pattern

Updated with new performance information on 11/13/24.

Important Results Identification Guidelines Trading Tips Performance Statistics Performance and Failure Rates Measure Rule Trading Performance Trading Example Target Exit, Stock Performance   Target Exit, ETF Performance   Target Exit, Crypto Performance See Also

Open-Close Reversal, Downtrend

Open-Close Reversal, Downtrend: Important Bull Market Results

Open-Close Reversal, Downtrend: Identification Guidelines

Open-Close Reversal, Downtrend: Trading Tips

Open-Close Reversal, Downtrend: Performance Statistics

For the following statistics, I used 1,149 stocks, starting from January 1990 to March 2013, but few stocks covered the entire range. All stocks had a minimum price of $5. There were two bear markets in the 2000s (as determined by the S&P 500 index), from 3/24/2000 to 10/10/2002 and 10/12/2007 to 3/6/2009. Everything outside of those dates represents a bull market.

For each open-close reversal, I found when the trend started and when it ended. To find the trend peak or valley, I found the lowest valley and highest peak within plus or minus 10 days (21 days total) each, before the open-close reversal and the same peak/valley test after the open-close reversal. The closest valley or peak before the open-close reversal is where the trend began. The closest peak or valley after the open-close reversal is where the trend ended. I compared the peak or valley to the average of the high and low price of the open-close reversal pattern (2nd day).

The 10-bar peak or valley number tends to find major turning points on the daily charts.

I measured performance from the day after the breakout (opening price) to the nearest trend peak or trend valley.

To determine the inbound price trend (I was looking for a down trend), I used linear regression on the average of the high-low prices in the five days before the pattern. That caught the short-term trend.

Open-Close Reversal, Downtrend: Performance and Failure Rates

Table 1 lists failure rates, sorted by market condition and breakout direction along with the average rise or decline.

A failure occurs when the stock fails to move in the direction of the breakout more than 5%.

The failure rates may appear high, but that's typical for short-term patterns like the open-close reversal. The highest failures occur in a bull market: 42% to 51% fail to see price move at least 5%.

Open-Close Reversal, Downtrend: Measure Rule

Table 2 shows how often the measure rule works. Use the measure rule to estimate of how far price is likely to rise or drop.

To do this, measure from the high to the low in the pattern to get the height. Add the height to the high or subtract it from the low to get the target.

Open-Close Reversal, Downtrend: Trading Performance

Table 3 shows the performance based on 5,061 trades using $10 commissions per trade ($20 round trip), starting with $10,000 per trade. No other adjustments were made for interest, fees, slippage and so on.

Here's the setup.

• Find a open-close reversal downtrend.
• Wait for price to close above the top or below the bottom of the pattern.
• Buy/short at the open the next day.
• Take profit when price moves 7%.
• A stop placed 7% away closes out the trade for a loss.

For example, in a bull market after an upward breakout, the net gain was $90.31 for all trades. The method won 58% of the time and there were 1,547 winning trades. The average gain of winning trades was $702.46.

Forty-two percent, or 1,131 trades were losers. They lost an average of $746.99.

The average hold time was 30 calendar days.

Notice how the gains and losses were pegged near 7%, which is how the test was setup.

Open-Close Reversal, Downtrend: Trading Example

The figure shows a open-close reversal pattern in 3M (MMM) on the daily scale, at A.

Price drops into the open-close reversal. The open is near the intraday low at A. The close is near the day's high but it remains below the prior day's close.

The next day, the stock closes above the top of A, staging an upward breakout. Buy at the open, at B.

When price climbs 7% above the buy price, sell. That happens at C.

A stop placed 7% below the buy price would stop out the trade in case of a reversal.

Open-Close Reversal, Downtrend: Target Exit, Stock Performance

I show a OCRD pattern in the figure, in the red box. In these tests, I assumed the OCRD was a 2-bar pattern.

Entry for the upward breakout (the only direction tested) uses a buy stop placed a penny above the top of the chart pattern (above the higher of the two bars). A stop loss order placed a penny below the bottom of the lowest bar helps limit losses.

The target exit (sell point) is found by computing the height of the OCRD, multiplying by two, and adding it to the top of the OCRD. In this example, the trade is stopped out for a loss.

For a more detailed explanation of the method I used to test the pattern, see the link.

Testing

As explained in the example above, I used a target exit placed twice as high as the height of the OCRD added to the price of the top of the OCRD. I placed a stop loss a penny below the bottom of the pattern.

Tables 4 and 5 show results for bull markets with upward breakouts and an inbound downward price trend. I used 497 stocks in the test.

Table 4. The OCRD pattern is profitable ($80.90 versus $68.70) compared to the benchmark. The win-loss ratio also shows improvement.

Open-Close Reversal, Downtrend: Target Exit, ETF Performance

The OCRD is highlighted by the red box in the chart. The entry is a buy stop a penny above the top of the 2-bar pattern and a stop loss order is placed a penny below the bottom of the pattern.

In this example, the ETF rises far enough to hit the target exit for a profitable trade.

Testing

This is the same test as the prior one except I used 94 exchange traded funds (ETFs) instead of common stocks.

Table 5. The OCRD is a stronger performer than the benchmark ($67.27 to $51.31). We also see an improvement with the win/loss ratio when trading ETFs.

Open-Close Reversal, Downtrend: Target Exit, Crypto Performance

I could not find enough trades of the pattern in cryptocurrencies.

-- Thomas Bulkowski

See Also

• Small pattern performance.
• Updated daily list of short patterns.
• 2-line candlestick patterns
• How did I test small patterns in stocks, ETFs, and cryptocurrency?

These are two-bar price patterns.

• 2-dance
• 2-did
• 2-tall
• Hook reversal, uptrend
• Hook reversal, downtrend
• Key reversal, uptrend
• Key reversal, downtrend
• Inside Days
• Outside Days
• Open-close reversal, uptrend
• Pipe top
• Pipe bottom
• Pivot point reversal uptrend
• Pivot point reversal, downtrend
• Upside weekly reversals
• Downside weekly reversals

The longest recorded flight of a chicken is thirteen seconds.