As of 10/07/2024
Indus: 41,954 -398.51 -0.9%
Trans: 15,783 -31.37 -0.2%
Utils: 1,027 -24.05 -2.3%
Nasdaq: 17,924 -213.95 -1.2%
S&P 500: 5,696 -55.13 -1.0%
|
YTD
+11.3%
-0.7%
+16.5%
+19.4%
+19.4%
|
 43,500 or 41,600 by 10/15/202416,800 or 15,700 by 10/15/20241,125 or 1,025 by 10/15/202419,000 or 17,600 by 10/15/20245,900 or 5,600 by 10/15/2024 |
As of 10/07/2024
Indus: 41,954 -398.51 -0.9%
Trans: 15,783 -31.37 -0.2%
Utils: 1,027 -24.05 -2.3%
Nasdaq: 17,924 -213.95 -1.2%
S&P 500: 5,696 -55.13 -1.0%
|
YTD
+11.3%
-0.7%
+16.5%
+19.4%
+19.4%
| |
|
43,500 or 41,600 by 10/15/202416,800 or 15,700 by 10/15/20241,125 or 1,025 by 10/15/202419,000 or 17,600 by 10/15/20245,900 or 5,600 by 10/15/2024 | ||
One-Day Reversal, Bottom
|
| Characteristic | Discussion |
| 3 bars | The pattern is composed of one bar, but for identification, I use three bars, one day before to one day after the one-day reversal. |
| Bottom | Look for the pattern in a short-term down trend. In other words, wait for an upward breakout (a close above the top of the pattern). |
| Open and close | The open and close on the one-day reversal must be within 25% of the intraday high. |
| Surrounding days | The low price of the two adjacent bars must be above the mid point of the one-day reversal. This should make the one-day reversal bar stand alone, like a tree atop a peak (only inverted). |
| Tall | The one-day reversal should be at least as tall as the one-month average height of other price bars. |
| Volume | High volume should be present on the one-day reversal. However, I excluded this requirement since the pattern is rare enough without it. |
| Trading Tactic | Explanation |
| Reversal | The pattern is supposed to act as a reversal of the down trend. Only trade those that reverse the short-term down trend. |
| Buy | Once price closes above the top of the pattern, buy at the open the next day. |
| Measure rule | The one-day reversal fulfills the measure rule 73% of the time (bull market). That is, measure the height of the pattern and add it to the high price to get an upward target. |
For the following statistics, I used 1,160 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 one-day 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 one-day reversal and the same peak/valley test after the one-day reversal. The closest valley or peak before the one-day reversal is where the trend began. The closest peak or valley after the one-day reversal is where the trend ended. I compared the peak or valley to the average of the highest high and lowest low price of the one-day reversal pattern.
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 pattern ended 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.
| Market | 5% Failure | Average Rise |
| Bull | 39% | 8% |
| Bear | 31% | 10% |
Table 1 lists failure rates, sorted by market condition along with the average rise. Since the one-day reversal acts as a reversal of the downward trend, I looked for an upward breakout.
A failure occurs when the stock fails to rise more than 5%.
The failure rates may appear high, but that's typical for short-term patterns like the one-day reversal. The highest failures occur in a bull market: 39% fail to see price rise at least 5%. The average rise is just 8%.
| Market | Success |
| Bull | 73% |
| Bear | 65% |
Table 2 shows how often the measure rule works. Use the measure rule to estimate of how far price is likely to drop.
To do this, measure from the highest high to the lowest low in the pattern to get the height. Add the height to the highest high to get the target.
The best performance of the measure rule occurs in a bull market, with 73% of patterns reaching their target. This makes sense since a bear market is trending lower, making it harder for an upward breakout to outperform in a stock (it fights the downtrend).
| Market | Bull | Bear |
| Net profit/loss | $61.35 | $(92.17) |
| Wins | 56% | 45% |
| Winning trades | 2,193 | 403 |
| Average gain of winners | $705.07 | $711.62 |
| Losses | 44% | 55% |
| Losing trades | 1,752 | 496 |
| Average loss | ($744.40) | ($745.25) |
| Average hold time (calendar days) | 27 | 14 |
Table 3 shows the performance based on 5,532 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.
The results are sorted by bull or bear market. The trades used the same setup as listed in One-Day Reversal, Bottom, Performance Statistics.
Here's the setup.
For example, in a bull market, the net gain was $61.35 for all trades. The method won 56% of the time and there were 2,193 winning trades. The average gain of winning trades was $705.07.
Forty-four percent, or 1,752 trades were losers. They lost an average of $744.40.
The average hold time was 27 calendar days.
Notice how the gains and losses were pegged near 7%, which is how the test was setup.
The figure shows a one-day reversal pattern in Alaska Air (ALK) on the daily scale, at A.
Price drops into the one day reversal. The open and closing prices are near the top of the pattern. The day is an unusually tall one, too.
The next day, the stock closes above the top of the one-day reversal. Buy at the open the following day, B.
When the stock climbs to the sell target, C, close out the position. If the stock tumbled instead of rising, a stop placed 7% below the buy price would have closed out the trade for a loss.
-- Thomas Bulkowski
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