As of 12/06/2024
  Indus: 44,643 -123.19 -0.3%  
  Trans: 16,879 -97.04 -0.6%  
  Utils: 1,036 -11.79 -1.1%  
  Nasdaq: 19,860 +159.51 +0.8%  
  S&P 500: 6,090 +15.16 +0.2%  
YTD
 +18.4%  
 +6.2%  
 +17.4%  
 +32.3%  
 +27.7%  
  Targets    Overview: 12/02/2024  
  Down arrow44,000 or 46,000 by 12/15/2024
  Down arrow17,025 or 18,000 by 12/15/2024
  Down arrow1,025 or 1,100 by 12/15/2024
  Up arrow20,000 or 18,500 by 12/15/2024
  Up arrow6,200 or 5,900 by 12/15/2024
As of 12/06/2024
  Indus: 44,643 -123.19 -0.3%  
  Trans: 16,879 -97.04 -0.6%  
  Utils: 1,036 -11.79 -1.1%  
  Nasdaq: 19,860 +159.51 +0.8%  
  S&P 500: 6,090 +15.16 +0.2%  
YTD
 +18.4%  
 +6.2%  
 +17.4%  
 +32.3%  
 +27.7%  
  Targets    Overview: 12/02/2024  
  Down arrow44,000 or 46,000 by 12/15/2024
  Down arrow17,025 or 18,000 by 12/15/2024
  Down arrow1,025 or 1,100 by 12/15/2024
  Up arrow20,000 or 18,500 by 12/15/2024
  Up arrow6,200 or 5,900 by 12/15/2024

Bulkowski on V-Bottoms

Initial release on 7/1/2019, stats updated on 8/27/2020.

V-bottom chart pattern
V-bottom

V Bottoms: Important Bull Market Results

Overall performance rank for up/down breakouts (1 is best): 24 out of 39
Break even failure rate: 19%
Average rise: 40%
Throwback rate: 55%
Percentage meeting price target: 52%*

The target is the left side high of the pattern.

The above numbers are based on 1,997 perfect trades. See the glossary for definitions.

V-Bottoms: Identification Guidelines

I programmed my computer to find V-bottoms because to do it any other way would be unfair. I'd pick the patterns which worked and would not see those which didn't.

Some of the guidelines shown in the table reflect the automation.

CharacteristicDiscussion
DowntrendLook for price to make a straight-line run downward with few or no pauses, often fitting inside a channel.
WidthAt least 3 weeks to 3 months wide.
ReversalPrice at the bottom of the V will form a one-day reversal, island reversal, or tail, usually on heavy volume, perhaps gapping upward.
TrendlineAfter the reversal, price pierces a down-sloping trendline drawn along the price tops, confirming the trend change.
RetracePrice on the right side must retrace at least 38.2% of the left side. Larger retraces didn't improve performance much, if any.
BreakoutWhen price retraces 38.2% of the left side, then that's the breakout.
No PauseThere should be no pause between the V-bottom and the breakout (38.2% retrace value). Otherwise, it's an extended V-Bottom.
No SpikeI removed any V-bottom with a single long price bar as the bottom.
AnglePrice drops and reverses, forming an angle with the vertical. In some V-bottoms, the left angle will mirror the right one. For example, if price dropped by 30 degrees, price might rise following a similar angle.

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V-Bottoms: Trading Tips

Trading a V bottom is difficult because calling the turn at the bottom of the V is tough to do correctly. You can use a down trendline (drawn along the descending price tops leading to the V bottom) pierce as the buy signal but it's best to wait 2 or 3 days for price to confirm the tend change. You can also check the mirror angle. Sometimes price will rise in an angle similar to the descent.

For the performance statistics listed above, I used an entry as the price of a 38.2% retrace of the left side of the V-bottom. In other words, if the stock dropped from 10 to 7 and then climbed back up to 8.15, a buy would signal. That is: (10 - 7) * 38.2% + 7 = 8.15.

Check other stocks in the same industry for a trend change. Usually the industry moves as a group and a reversal in one will appear in other stocks in the industry as well.

Consult the associated figure on the right.

Trading TacticExplanation

Diamond bottom chart pattern measure rule

The Measure Rule

BreakoutMeasure the drop from A to B. When price retraces 38.2% of the way up (C), it constitutes a breakout (entry signal). The 38.2% value is arbitrary.
Measure ruleSee the measure rule figure to the right. The target is A, the high price at the start of the pattern.
Price trendPerformance doesn't matter much if the inbound price trend is up or down (as measured from the trend start).
Tall patternsTall (take the height of the V-bottom and divide it by the breakout price. If it's larger than 34.7%, then it's a tall pattern) patterns substantially outperform short ones.
Yearly lowFor best performance, V-bottoms with breakouts within a third of the yearly low perform best.
Volume trendA rising volume trend results in the best post breakout performance.
ThrowbacksThrowbacks hurt post breakout performance.

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V-Bottoms: Example

V bottom chart pattern example

This is a good example of a V bottom chart pattern. Price drops at a 45 degree slope and then reverses, moving up at a slightly steeper slope. The V bottom also appears to be a head-and-shoulders bottom with the right bottom higher than the left -- call it an ugly head-and-shoulders bottom.

-- Thomas Bulkowski

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See Also

 

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