Bottom reversal is a YardCharts trend inversion bullish pattern and can be expected to take form at market bottoms. It occurs as the result of a downtrend followed by a trading range, which is then followed by a further decline and a sudden reversal of the self- same decline.
The entry point for a bull trade or closing of a short position is at the break (on a closing base) of the range's higher band horizontal delimitation. It is important to note the speed at which the market comes back from the recent market low to above the range, where it closes above its higher band. The down-velocity from range higher band to the market recent low must be lower or equal to the up-velocity from the market low back to up above the range higher delimitation. This translates into the leg, range-high to market low, being composed by a number of bars >= than the leg, market-low to range high. See picture B. If the market has indeed reversed, it should start rising from this point on. The first sign that this pattern is failing is when the market falls back below the range lower base instead of climbing. It is a definite failure if the market takes out the last recent low. Depending on the investor's risk appetite, a stop loss should be placed either below the range lower band or no lower than the market recent low. (See picture B)
Below are four real Bottom Reversals alerts recently called by YardCharts that have successfully performed since the day of the buy alarm. In this case, success means that beginning from the entry point, the market in the particular stock has risen a distance at least equal to three times the range's High-Low band differential without first hitting the stop placed below the range lower band. The range segments and colors are shown exactly as they appear in YardCharts Alarm section.
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