Last Updated on August 25, 2022 by Oddmund Groette
There are some very aggressive market strategies that seek to capitalize on very fast-moving markets. The Bump and Run chart pattern is one of such aggressive strategies that will help you spot the end of a trend and the beginning of a new one. But what does the pattern entail?
The Bump and Run Reversal (BARR) is a reversal chart pattern that is formed when an asset’s price goes through a fast and large price hike or decline due to excessive speculation in the asset leading to a buying or selling climax, as the case may be, and a subsequent price reversal.
Let’s take a look at this pattern.
What is the Bump and Run chart pattern strategy?
As the name implies, the Bump and Run Reversal (BARR) is a reversal pattern that forms from excessive speculation. In an uptrend, it results from a buying climax that gives way to a bearish reversal, while in a downtrend, it often from a selling climax or capitulation, which eventually gives way to a bullish reversal.
The pattern was developed by Thomas Bulkowski in 1996 but was introduced to the trading world in the June 97 issue of Technical Analysis of Stocks and Commodities. It is also one of the patterns included in Bulkowski’s book, the Encyclopedia of Chart Patterns. Bulkowski identified three main phases to the pattern:
The Lead-in Trend: This is the first phase of the pattern. It is just the general trend with the usual up and down waves forming on normal volume. A trendline across the swing lows (uptrend) or (downtrend) highs shows the gradient of the trend.
The Bump: This second phase of the pattern is marked by a rapid price movement, creating a steeper trendline. This is often caused by excessive speculative interest in the asset and happens on high trading volume.
The Run: This is the final phase of the pattern. It starts with the price pulling back to the main trendline (lead-in trendline), but it eventually breaks the trendline, leading to a reversal.
Bump and run reversal bottom pattern
This is also known as the bullish bump and run pattern because it could lead to a reversal to a bullish trend. The pattern starts with a standard bearish trend. Suddenly, a relatively big bearish trend impulse appears on the chart – the bump. After new lows are reached, the price action reverses, reaches the lead-in downtrend line, and breaks it upwards to start a fresh bullish move – the run.
Bearish bump and run pattern
The bearish Bump and Run pattern starts with a standard bullish trend (the lead-in trend). Then the price starts climbing faster, creating a steeper trendline (the bump). After reaching a new high, the price declines to the lead-in trendline and breaks it. This line break is the start of the run, which is the emergence of a bearish trend. If you are able to catch a stock at this point, you stand to make a significant gain on a short-sell trade.
Bump and run trading strategy (backtest and example)
A backtest of bump and run trading strategy is coming soon.