Yard Charts Technical Analysis Software: Bottom Reversal Pattern
Pattern Overview
The Bottom Reversal is a bullish trend inversion pattern identified by YardCharts at market lows:
- Initial Downtrend: The market exhibits a clear downward trend (Segment 1, Picture A).
- Trading Range: A pause in the decline forms a trading range (Range, Picture A).
- False Breakdown: The market appears to continue the downtrend with a break below the range (Down Break, Picture A).
- Reversal: Immediately after the breakdown, the market reverses sharply, closing above the trading range's upper boundary (Reversal, Picture A).
Trading Strategy
- Entry Point: The bullish trade entry or short position close is when the price closes above the upper limit of the trading range.
- Velocity Consideration: The speed of the decline to the new low should be slower or equal to the speed of the subsequent rise back above the range's upper band, with an equal or greater number of bars in the decline than in the recovery.
Risk Management
- A stop loss should be set below the lower boundary of the trading range or, for a tighter risk control, just below the recent low.
- Patter failure is indicated if the price drops below the lower band of the range or the recent low.
Performance
YardCharts nas successfully identified four Bottom Reversal patterns where, post-entry, the stock price increased by at least three times the height of the trading range without hitting the stop loss below the range's lower band.
