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The bump-and-run reversal bottom is a chart pattern that is a surprisingly good performer in both
bull and bear markets. It has a very low break even failure rate and high average rise after the breakout. Discovered by
Thomas Bulkowski in 1999. For more information see pages 115 to 131 of the book
Encyclopedia of Chart Patterns, Second Edition and read the following...
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Important Bull Market Results
Overall performance rank (1 is best): 8 out of 23
Break even failure rate: 2%
Average rise: 38%
Throwback rate: 59%
Percentage meeting price target: 68%
Identification Guidelines
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Characteristic |
Discussion |
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Arithmetic scale |
Use the arithmetic chart,
not the semi logarithmic one because you will use it to measure vertical distances. |
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Shape |
A frying pan, tilted down,
with the handle on the left. |
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Trendline |
A down-sloping trendline approximates
0 to 45 degrees. |
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Lead-in phase |
The handle portion of the frying pan is called the
lead-in phase as it leads in to the bump
phase. The chart to the lower right shows the location. |
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Lead-in height |
Measures from the trendline drawn across the highs to the
handle low. Select the widest distance between the trendline and the low, measured
vertically, in the first quarter of the chart pattern. The chart to the right
shows an example. The height is between the two blue dots. |
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Lead-in duration |
At least a month. |
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Bump phase |
This is the frying pan. The down-sloping trendline deepens
to 60 degrees or more. Price drops rapidly then levels out and turns around,
forming a rounded turn. Price may pause at the 30-degree trendline before moving
higher. The chart to the right shows the location of the bump phase. |
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Bump height |
Measured from the trendline to the lowest low, vertically,
and it should be at least twice the lead-in height. The chart to the right shows
the measure between the two blue dots. |
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Uphill run |
After the bump phase, price begins an uphill run. I show
the run phase on the chart to the right.
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Volume |
High during the start of the
pattern, the bump start, and upward breakout. |
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Confirmation |
The pattern confirms when price
closes above the down-sloping trendline. |
Trading Tips
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Trading Tactic |
Explanation |
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Measure rule |
The highest high in the pattern (point
A in the chart to the right) is the target.
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Breakout |
Buy when price closes above the down-sloping 30-degree
trendline, B. Alternatively, draw several trendlines
parallel to and lead-in height below the 30-degree trendline (the green arrows at
E). Buy when price fails to close below the next lower
trendline and rises above the adjacent, higher trendline
(C). |
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Old high |
When price rises to the old high (A
, where the pattern begins) consider selling if the
stock shows weakness. |
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Throwback |
Throwbacks hurt performance. The link to the left explains
what to look for and this link discusses performance.
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Dual bump |
A second downward bump occurs 20% of the time. The bump
would begin at B, round downward before joining back
with the trendline and staging an upward breakout.
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Yearly high |
AVOID trading this pattern near
the yearly high. Patterns with breakouts near the high tend to underperform |
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Example
The above figure shows an example of a bump and run reversal bottom chart pattern. Price begins the pattern at
A and forms the lead-in phase followed by the bump phase. The lead-in height (C) measured vertically, is less than half the bump phase height (D), also measured vertically, as required. The two measure from the trendline to the lowest low directly below (not to where the
green arrows point, but the low price directly below). The bump and run reversal bottom appears within a third of the
yearly low, despite what the edited chart shows.
Price breaks out and throws back within a few days but eventually fulfills the measure rule by climbing to B, near the launch price of A.
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