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 Shark-32 Chart Pattern

For more information on this pattern, read Encyclopedia of Chart Patterns First Edition, (a later edition is pictured), pages 501 to 510. Below is updated performance information based on tests in January 2013. Also note that this pattern is only in the first edition of the Encyclopedia.

If you click on the above link and then buy the book (or anything) while at Amazon.com, the referral will help support this site. Thanks.

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Updated with new performance information on 9/5/24.

Important Results Identification Guidelines Trading Tips Example Performance Statistics Inbound Price Trend versus Performance Reversal versus Continuation Performance Failure Rates Measure Rule Trading Performance Trading Performance with Pattern Stop Trading Example Target Exit, Stock Performance   Target Exit, ETF Performance   Target Exit, Crypto Performance  See Also

Shark-32

Shark-32: Important Bull Market Results

Shark-32: Identification Guidelines

Shark-32: Trading Tips

Shark-32: Example

I show two shark-32 patterns in Abaxas (ABAX). The first, in December, breaks out upward when the stock closes above the horizontal red line. Buying at the open a day later would be a mistake since a good part of the move is over.

For statistical analysis purposes, the short-term trend begins at B and ends at C. Those are the lowest valley (B) and highest peak (C) within +/- 10 days. Using that definition, the shark acts as a continuation of the BC up trend.

The second shark-32 appears in January. It acts as a continuation of the trend that begins D and ends at E. The E peak may not be a valid one if the stock keeps climbing. As I write this, the most recent day appears on the chart and if a higher peak appears within 10 days then the up trend will continue.

Notice how the January shark-32 appears midway along the price trend from D to E. The trend starts at about 35 and ends at 40. The shark appears at 37.50. This is an example of a shark-32 acting as a half-staff pattern.

Shark-32: Performance Statistics

For the following statistics, I used 1,189 stocks, starting from January 1990 to January 2013, but few stocks covered the entire range. All stocks had a minimum price of $5. That gave me 23,492 samples. 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 shark-32 pattern, I found where 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 shark-32 and the same peak/valley test after the shark-32. The closest valley or peak before the shark-32 is where the trend began. The closest peak or valley after the shark-32 is where the trend ended.

The 10-day peak or valley number tends to find major turning points.

I measured performance from the breakout price (the first day's high or low in the pattern, depending on the breakout direction) to the nearest trend peak or trend valley after the breakout.

Table 1. What I find interesting in this table is the gradual performance deterioration of the shark-32 over time. In the 1990s, an upward breakout from the shark-32 averaged a gain of 13%, excluding dividends, trading commissions, fees and so on. In the 2000s (bull market only), the average gain dropped to 10%. For the 1,416 samples in the 2010s, the average gain is just 9%.

To put this in a wider context, it is 30% harder to make money today than it was in the 1990s! To put it another way, the average market trend is 30% shorter today than it was two decades ago.

Downward breakouts show a similar trend with drops of 10%, 8% and 7% over the decades.

This is not a new finding. I reported similar behavior in a recent study.

Shark-32: Inbound Price Trend versus Performance

Table 2 shows the performance of stocks after the shark-32 pattern when sorted by the direction of the inbound price trend. The results include all samples, sorted by a bull or bear market.

For example, if price is trending upward leading to the shark-32 and the shark has an upward breakout, the average gain in a bull market is 11%. The shark-32 acts as a continuation pattern (a continuation of the up trend). Oddly the market type (bull or bear) did not influence upward breakout performance.

If the inbound trend is up but the breakout is down (meaning the shark-32 acts as a reversal), the average drop measures 7% in a bull market but 15% in a bear market.

Shark-32: Reversal versus Continuation Performance

Table 3. Which perform better, continuations or reversals? The table shows the answers sorted by market condition and breakout direction..

In all types of market conditions (bull or bear) and breakout directions (up or down), shark-32s that act as continuations of the price trend outperform reversals.

Shark-32 Failure Rates

Table 4 shows the failure rate sorted by market condition and breakout direction along with the average rise or decline for the associated conditions.

For example, in a bull market after an upward breakout, 32% of the shark-32 patterns fail to see price rise at least 5%. That's huge. Long chart patterns (such as double bottoms), often have failure rates in the single digits, but performance is measured differently (the performance numbers listed in these tables measure from the breakout to the trend high or low, which is often the first major high or major low. Double bottoms look for a 20% trend change to end the trend. That's a big difference).

Another example from the table shows that 21% of the shark-32 pattern fail to drop at least 5% after a downward breakout in a bear market. That is the lowest failure rate in the table. That makes sense since the average drop is 16%. The highest failure rate is 38% and the average drop is just 9%.

Shark-32 Measure Rule

The measure rule is simply the height of the chart pattern added to the top of the pattern (for upward breakouts) or subtracted from the bottom of the chart pattern for downward breakouts. Table 5 shows how often this rule works for the shark-32 pattern.

The best performance comes when the breakout direction agrees with the market trend. That is, upward breakout in a bull market or downward breakout in a bear market. The rule works 71% to 72% of the time.

Making a contra-trend trade results in inferior performance with the measure rule working between 64% and 66% of the time. In other words, go long in a bull market and short in a bear market. There's your proof that it helps.

Shark-32: Trading Performance

Table 6 shows the performance based on 23,369 trades using $10 commissions per trade ($20 round trip), starting with $10,000 per trade. No adjustments were made for interest, fees, slippage and so on.

The results are sorted by bull or bear market, up or down breakouts. The trades used the same setup as listed in Shark-32 Performance Statistics.

Here's the setup.

• Find a shark-32
• If price closes above the pattern's high, buy at the open the next day.
• If price closes below the pattern's low, short at the open the next day.
• Sell/cover when price moves 7% in the direction of the breakout.
• If price moves 7% in the direction opposite the breakout, close out the trade for a loss.

For example, in a bull market after an upward breakout from a Shark-32, the net gain was $69.55 for all trades. The method won 56% of the time and there were 5,218 winning trades. The average gain of winning trades was $714.07.

Forty-four percent, or 4,117 trades were losers. They lost an average of $747.33.

The average hold time was 26 calendar days.

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

Shark-32: Trading Performance With Pattern Stop

Table 7 shows the results of 23,466 trades, but this time, a penny below the bottom of the Shark-32 pattern (upward breakout) or a penny above the top of the Shark-32 pattern (downward breakout) was used as a stop instead of a 7% stop.

For example, in a bull market after an upward breakout from a Shark-32, the net gain was $59.90 for all trades. The method won 51% of the time and there were 4,812 winning trades. The average gain of winning trades was $714.62.

Forty-nine percent, or 4,575 trades were losers. They lost an average of $628.74.

The average hold time was 21 calendar days.

When compared to the 7% stop method, placing a stop below the bottom of the pattern showed that losses decreased in a bull market, but increased in a bear market. The net profit or loss improved in 3 of 4 cases.

Shark-32: Trading Example

The figure shows a Shark-32 pattern in 3M (MMM) on the daily scale.

The shark-32 pattern is in the inset. Yes, although the second day's high appears to be the same as the first day, it's lower.

A buy signals when the stock closes above the top of the pattern (shown as line B). The trade begins at the opening price the next day. Seven percent above this would be the target, C. Plugging in the numbers, we get B as 84.70 and C, 7% higher or 90.63. Despite what it shows on the chart, the stock did not reach the target and was stopped out for a loss.

If the stock did not reach the target but dropped instead, a stop place 7% below the buy price would close out the trade.

If a pattern stop were used, a penny below the low at A (red line) would close out the trade.

Shark-32: Target Exit, Stock Performance

In the discussion that follows, I use twice the height of the shark as a price target to sell, and a stop loss order placed a penny below the pattern to limit adverse moves.

I show an example trade in 3M stock. Circled at A is the shark-32 pattern (also highlighted in the red square inset). Price breaks out upward when the stock climbs above the top of the pattern on the second day after the shark ends (pointed to "Buy at Open"). I placed a buy-stop a penny above the top of the shark to enter the trade. In this case, we buy at the opening price, which is higher than the top of the shark.

The target is twice the height of the shark added to the top of the shark, giving the target shown by the green line (price is approximate).

A stop loss order is placed a penny below the bottom of the shark. In this example, the stop does not trigger. Rather, price hits the target and the trade exits for a profit.

Testing

As explained in the example above, I used a target exit placed twice as high as the height of the shark-32 pattern. I placed a stop loss a penny below the bottom of the pattern. For additional methodology details, see the link.

Tables 8, 9, and 10 show results for bull markets with an upward breakout and an inbound price trend either up or down. I used 497 stocks in the test.

The results for the shark columns show that sharks acting as reversals outperform those acting as continuation patterns,, $89.60 versus $66.90, respectively. The benchmark results (two columns), also show the same trend with reversals outperforming.

Shark results, when compared to the benchmark (which is a three-bar pattern of any shape (including a shark-32), bought mid-month), you'd do better trading a random pattern in an uptrend than trading the shark ($73.54 for the benchmark versus $66.90 for the shark). In a downtrend, the shark-32 pattern performs slightly better than the benchmark ($89.60 gain versus $83.91, respectively)

Shark-32: Target Exit, ETF Performance

I show a sample trade in iShares U.S. Aerospace & Defense ETF (exchange traded fund, ITA).

The shark-32 is in the red box. I placed a stop-loss order a penny below the pattern's low (132.60) to protect against a big loss, and a buy stop a penny above the high (134.08) to enter the trade quickly.

The height of the pattern is the highest high minus the lowest low in the 3-bar pattern, or $1.46. Multiply that by two and add it to the pattern's high gives a target of 136.99. When price reaches the target, sell.

As the chart shows, the ETF reached the target and sold for a profit.

Testing

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

Notice the significantly higher number of trades used in the benchmark. I expect the results from the benchmark columns to be stable (unlikely to change significantly) compared to the shark trades.

See the entry for average profit/loss per trade at $29.16 for sharks? That's unusually low. I checked my spreadsheet and it's correct. I don't know why it's so low, but it is. The benchmark in an uptrend does more than twice as well (gain of $68.94).

For the downtrend, I don't think the $88.20 number will remain unchanged. It's likely too high and will drop with additional samples. If the numbers don't change with additional samples, the shark outperforms the benchmark with more money and a higher win/loss ratio.

Shark-32: Target Exit, Crypto Performance

This is an example trade in the cryptocurrency AAVE on the daily scale. I highlight the shark-32 pattern in the red box.

Entry is a penny above the top of the chart pattern with a buy-stop

A stop-loss order helps minimize the loss with a sell price of a penny below the bottom of the pattern. The two green lines show the approximate buy stop and stop-loss order locations.

The currency broke out upward but quickly reversed and trigged the stop-loss order for a losing trade.

Testing

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

In both trend directions, the benchmark substantially outperforms the shark-32 pattern, probably due to few samples for the sharks. The results suggest to avoid trading the shark-32 in crypto currency. Keep in mind that additional samples would change the results for both the shark and benchmark columns.

-- 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.
• Sharks are small symmetrical triangles.
• Gap2H -- the non-inverted version
• Inverted gap 2H

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