As of 09/27/2022
Indus: 29,135 125.82 0.4%
Trans: 12,153 +153.95 +1.3%
Utils: 934 19.25 2.0%
Nasdaq: 10,830 +26.58 +0.2%
S&P 500: 3,647 7.75 0.2%

YTD
19.8%
26.2%
4.7%
30.8%
23.5%

32,000 or 29,200 by 10/15/2022
13,800 or 11,800 by 10/15/2022
990 or 900 by 10/15/2022
11,975 or 10,700 by 10/15/2022
3,800 or 3,500 by 10/15/2022

As of 09/27/2022
Indus: 29,135 125.82 0.4%
Trans: 12,153 +153.95 +1.3%
Utils: 934 19.25 2.0%
Nasdaq: 10,830 +26.58 +0.2%
S&P 500: 3,647 7.75 0.2%

YTD
19.8%
26.2%
4.7%
30.8%
23.5%

32,000 or 29,200 by 10/15/2022
13,800 or 11,800 by 10/15/2022
990 or 900 by 10/15/2022
11,975 or 10,700 by 10/15/2022
3,800 or 3,500 by 10/15/2022
 
OneDay Reversal, Top

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 oneday reversal. 
Top  Look for the pattern in a shortterm up trend. In other words, wait for a downward breakout (a close below the bottom of the pattern). 
Open and close  The open and close on the oneday reversal must be within 25% of the intraday low. 
Surrounding days  The high price of the two adjacent bars must be below the mid point of the oneday reversal. This should make the oneday reversal bar stand alone, like a tree atop a peak. 
Tall  The oneday reversal should be at least as tall as the onemonth average height of other price bars. 
Volume  High volume should be present on the oneday 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 up trend. Only trade those that reverse the shortterm up trend (breakout downward). 
Buy  Once price closes below the bottom of the pattern, sell short at the open the next day. 
Measure rule  The oneday reversal fulfills the measure rule 67% of the time (bull market). That is, measure the height of the pattern and subtract it from the low price to get the downward 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 oneday 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 oneday reversal and the same peak/valley test after the oneday reversal. The closest valley or peak before the oneday reversal is where the trend began. The closest peak or valley after the oneday 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 oneday reversal pattern.
The 10bar 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 an up trend), I used linear regression on the average of the highlow prices in the five days before the pattern. That caught the shortterm trend.
Market  5% Failure  Average Drop 
Bull  48%  6% 
Bear  31%  10% 
Table 1 lists the failure rates, sorted by market condition along with the average drop. Since the oneday reversal is supposed to act as a reversal of the upward trend, I assumed a downward breakout.
A failure occurs when the stock fails to drop more than 5%.
The failure rates may appear high, but that's typical for shortterm patterns like the oneday reversal. The highest failures occur in a bull market: 48% fail to see price drop at least 5%. The average drop is just 6%. Since a bear market sucks prices lower, it makes sense that this pattern works better in a bear market.
Market  Success 
Bull  67% 
Bear  67% 
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. Subtract the height from the lowest low in the pattern to get the target.
Price reaches the measure rule target 67% of the time, regardless of the breakout direction.
Market  Bull  Bear 
Net profit/loss  $(97.80)  $8.80 
Wins  42%  51% 
Winning trades  1,477  299 
Average gain of winners  $748.19  $749.70 
Losses  58%  49% 
Losing trades  2,043  293 
Average loss  ($709.41)  ($747.26) 
Average hold time (calendar days)  28  15 
Table 3 shows the performance based on 4,790 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 OneDay Reversal, Top, Performance Statistics.
Here's the setup.
For example, in a bull market, the net loss was $97.80 for all trades. The method won 42% of the time and there were 1,477 winning trades. The average gain of winning trades was $748.19.
Fiftyeight percent, or 2,043 trades were losers. They lost an average of $709.41.
The average hold time was 28 calendar days.
Notice how the gains and losses were pegged near 7%, which is how the test was setup.
The figure shows two oneday reversal patterns in Alaska Air (ALK) on the daily scale, at A and C.
Price rises leading to the oneday reversal. Price opens near the low for the day and also closes near the low for the day, with a tall trading range, as required by the pattern.
The next day, price breaks out downward when it closes below the bottom of A and C.
The stock is shorted at the open of bars B and D.
A stop placed 7% below the buy price would exit the trade if needed. It triggers for both A and C at E.
 Thomas Bulkowski
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