As of 11/20/2024   Indus: 43,408 +139.53 +0.3%     Trans: 17,002 -26.31 -0.2%     Utils: 1,055 +1.25 +0.1%     Nasdaq: 18,966 -21.33 -0.1%     S&P 500: 5,917 +0.13 +0.0%	YTD  +15.2%    +6.9%    +19.7%    +26.3%    +24.1%	Targets    Overview: 11/12/2024     46,000 or 43,000 by 12/01/2024   18,000 or 16,600 by 12/01/2024   1,075 or 1,000 by 12/01/2024   20,000 or 18,400 by 12/01/2024   6,100 or 5,800 by 12/01/2024
Chart Pattern Indicator: on 11/18/24

As of 11/20/2024   Indus: 43,408 +139.53 +0.3%     Trans: 17,002 -26.31 -0.2%     Utils: 1,055 +1.25 +0.1%     Nasdaq: 18,966 -21.33 -0.1%     S&P 500: 5,917 +0.13 +0.0%	YTD  +15.2%    +6.9%    +19.7%    +26.3%    +24.1%
Targets    Overview: 11/12/2024     46,000 or 43,000 by 12/01/2024   18,000 or 16,600 by 12/01/2024   1,075 or 1,000 by 12/01/2024   20,000 or 18,400 by 12/01/2024   6,100 or 5,800 by 12/01/2024
Chart Pattern Indicator: on 11/18/24

Bulkowski on the Pivot Point Reversal, Downtrend Chart Pattern

Updated with new performance information on 11/15/24.

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

Pivot Point Reversal, Downtrend

Pivot Point Reversal Chart Pattern: Important Bull Market Results

Pivot Point Reversal, Downtrend: Identification Guidelines

Pivot Point Reversal, Downtrend:, Trading Tips

Pivot Point Reversal, Downtrend: Performance Statistics

For the following statistics, I used 1,125 stocks, starting from January 1990 to March 2013, but few stocks covered the entire range. All stocks had a minimum price of $5. Since samples were so numerous, I used one every 25 patterns. 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 pivot point 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 pivot point reversal and the same peak/valley test after the pivot point reversal. The closest valley or peak before the pivot point reversal is where the trend began. The closest peak or valley after the pivot point reversal is where the trend ended. I compared the peak or valley to the average of the high and low price of the pivot point 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 ten days before the pattern. That caught the short-term trend.

Pivot Point 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 moves less than 5% in the breakout direction.

The failure rates may appear high, but that's typical for short-term patterns like the pivot point reversal. The highest failures occur in a bull market.

Pivot Point 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.

Pivot Point Reversal, Downtrend: Trading Performance

Table 3 shows the performance based on 18,627 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 pivot point 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% in the direction of the breakout.
• 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 $71.03 for all trades. The method won 56% of the time and there were 5,515 winning trades. The average gain of winning trades was $703.10.

Forty-four percent, or 4,292 trades were losers. They lost an average of $741.15.

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.

Pivot Point Reversal, Downtrend: Trading Example

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

The short-term price trend is downward just before the pivot point reversal. At A, the stock closes above the prior day's high, confirming the reversal.

At B, the stock stages a breakout. Buy at the open the next day, C.

When price climbs 7% above the buy price, sell. I don't show that on the chart.

A stop placed 7% below the buy price would stop out the trade in case of a reversal. I don't show that either. Go figure.

Pivot Point Reversal, Downtrend: Target Exit, Stock Performance

I show a PPRD pattern in the figure, in the red box.

Entry for the upward breakout (the only direction tested) uses a buy stop placed a penny above the top of the chart pattern. A stop loss order placed a penny below the bottom of the chart pattern helps limit losses. The target exit (sell point) is found by computing the height of the PPRD, multiplying by two, and adding it to the top of the PPRD.

In this example, the stock is stopped out, causing a losing trade.

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 PPRD pattern added to the price of the top of the PPRD. I placed a stop loss a penny below the bottom of the pattern.

Tables 4, 5, and 6 show results for bull markets with upward breakouts and an inbound downward price trend. I used 497 stocks in the test.

Table 4. The PPRD exceeds the benchmark performance ($90.19 versus $68.70). The win/loss ratio is slightly better than the benchmark, too.

Pivot Point Reversal, Downtrend: Target Exit, ETF Performance

The PPRD is highlighted by the red box on the chart. The entry is a buy stop a penny above the top of the PPRD and a stop loss order is placed a penny below the bottom of the pattern.

In this example, the entry triggers the day after the pattern completes. Price climbs far enough to reach the target exit where the position is sold. It reaches the target before the stop loss, so the trade is profitable.

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 results of the PPRD in ETFs is slightly better than the benchmark ($61.21 versus $51.31).

Pivot Point Reversal, Downtrend: Target Exit, Crypto Performance

The chart on the right shows how I tested performance in cryptocurrencies.

I highlighted the PPRD in the red box. A buy stop placed a penny above the top of the PPRD triggers a day after the pattern ends. A stop loss placed a penny below the bottom of the pattern does not trigger in this example. Rather, the currency rises far enough to sell at the target. The target is twice the height of the 2-bar pattern added to the highest price in the pattern.

Testing

This is the same test as the prior one except I used 38 crypto currency stocks instead of common stocks.

Table 6. Trading this pattern in cryptocurrencies results in better performance than the benchmark ($178.34 versus $147.18).

-- Thomas Bulkowski

See Also

• How did I test small patterns in stocks, ETFs, and crypto currency?
• Small pattern performance.
• Updated daily list of short patterns.
• Hook reversal, uptrend
• Hook reversal, downtrend
• Key reversal, downtrend
• Outside Days
• Inside Days
• Open-close reversal, uptrend
• Open-close reversal, downtrend
• Pivot point reversal, uptrend
• Pivot point reversal, downtrend
• Upside weekly reversals
• Downside weekly reversals

111,111,111 x 111,111,111 = 12,345,678,987,654,321