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Identification Guidelines
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Characteristic |
Discussion |
|
Shape |
An inverted U or V. |
|
Time |
By convention, a throwback
occurs within 30 days after the breakout. |
|
White space |
The stock must not slide along
the breakout price but must zoom up, curl around and return to, or come close to, the breakout price or chart pattern trendline. |
|
Volume |
High volume breakouts have
a tendency to throwback more often than low volume ones. |
Trading Tips
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Trading Tactic |
Explanation |
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Expect one |
Expect a throwback will occur.
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Overhead resistance |
This is the chief cause of
a throwback. Price bumps up against overhead resistance and then price tumbles. Be sure to look for prior peaks and valleys,
horizontal consolidation regions (HCRs), and other signs of overhead resistance before trading. |
|
Throwback rate |
53% of 12,256 chart patterns
had throwbacks. |
|
Time |
Price climbs for 3 days after the
breakout, on average, before beginning the return journey. |
|
Loop time |
It takes an average of 10 days,
total, for price to complete the return trip back to the breakout, as measured from the breakout day to the day price returns. |
|
Height |
The average height from the breakout
price to the top of the throwback is 10%, but a frequency distribution shows that most rise 6% to 8%. |
|
Volume |
A high volume (above the 30-day
average) breakout throws back 70% of the time, on average. |
|
Price drop |
After the stock returns to the breakout
price, 14% continue dropping below the chart pattern. That means 86% of the time price recovers. |
Measure Rule
The measure rule for throwbacks is similar to the measured move up
chart pattern. Using the figure to the left as a reference, find where the upward price trend
begins (the swing low at point A) and subtract the price from
where the trend ends at B (the
swing high). Add the difference to the throwback low at C to get
a price target.
Price Trend
The price trend leading to the breakout can help determine whether price will throwback or
not. If price has more than 3 consecutively higher closes ending the day before the breakout,
then expect price to have a lower probability of throwing back. See the study,
Price Trends Leading to the Breakout.
Power Move
During a throwback attempt, if price remains above the breakout price, then expect a more
powerful move than if price drops below the breakout. I measured this in 19 chart pattern
types from July 1991 to March 2005 and found 10,348 chart patterns. Of that group, 3,167 had
throwbacks. When price remained equal to or above the breakout price, the rise averaged 40%
(400 samples qualified). When price dropped below the breakout, the resulting rise averaged
just 29% (2,767 samples). The numbers measure the rise from the breakout to the ultimate high,
which is the highest high before price tumbles by at least 20%.
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