Bulkowski on Consecutive Higher/Lower Closes

Imagine you're considering buying the symmetrical triangle chart pattern shown here, outlined with two converging straight lines. Price leading to the upward breakout (A) closes higher four days in a row. I show that in the inset (B) with four red dots. Do four consecutive up closes mean price is more likely to throwback? By that, I mean the move from A to C, where the stock returns to the breakout price shortly after the breakout. The next slide provides the answer.

Is a throwback more likely? No. In fact, consecutively higher closes leading to the breakout are a good indicator that a retrace will not occur. Does the same trend apply to downward breakouts? Yes. More than three consecutive lower closes leading to a downward breakout means a pullback is less likely. What about performance? See the next slide.

Given the same situation, is the move from A to C shorter than it is otherwise? To put it another way, does performance suffer after 3 consecutive higher or lower closes leading to a breakout? The next slide provides the answer.

Does performance suffer? No. Post-breakout performance is better if price closes higher/lower consecutively more than 3 days leading to the breakout, especially if the breakout is downward (that is, expect a larger decline after 3 consecutive lower closes). What about failures? See the next slide.

Given the same setup, does price fail more often than normal? That is, instead of continuing upward, price drops like that shown from A to C. The next slide provides the answer.

Do failures occur more often if price closes consecutively higher/lower more than 3 days leading to the breakout? No. Failures occur half as often for upward breakouts, but only see a slight improvement after downward breakouts. For more information on these findings, click: this link.