If you're looking for a way to capture reversal signals with simple patterns that have high accuracy, the bump and run pattern can be an intriguing choice. In this article, we'll discuss the analysis of this pattern and how you can use it in forex trading.
Analyzing Reversals with Bump and Run Patterns
The Bump and Run Reversal (BARR) pattern is a price formation pattern that helps detect potential reversals at the end of a trend. This pattern is relatively simple in its form yet boasts a high level of accuracy. It consists of two main phases: a sharp price spike followed by a reversal from the previous trend.
Confirming Signals, Enhancing Accuracy
To enhance the accuracy of reversal signals using the bump and run pattern, there are several criteria to consider when this pattern forms:
- Degree of the general trend slope: Note the slope degree of the trend before the spike occurs. Ideally, the trend should be between 30 to 45 degrees.
- Degree of the spike pattern slope: The slope of the spike pattern should ideally range from 45 to 60 degrees. A slope beyond these limits may reduce the pattern's validity.
- Trading volume: Monitor changes in trading volume when the price spikes occur. Spikes typically happen when trading volume increases.
- Comparison of spike lengths: The length of the new spike pattern (A2) should be at least twice as long as the previous spike (A1) when trading volume is still relatively stagnant.
- Reversal confirmation: Reversal signals can be confirmed when the price successfully breaks through the trendline.
Application of Bump and Run Patterns
This pattern can be found on various time frames, but it's usually easier to spot on the daily time frame as trends tend to be more consistent. You can use this pattern to determine entry and stop-loss positions, while take profit can be determined based on flexible market conditions.
Example of Applying Bump and Run Patterns
For instance, on the EUR/USD pair with a daily timeframe, a bearish bump and run pattern are observed when the bearish trend has a slope of about 30 degrees. The price spikes occur as trading volume increases. You can prepare entry positions when the price successfully breaks through the trendline, while stop loss can be placed between the end of the spike pattern and the entry position. Take profit can be determined based on market conditions and resistance levels.
By considering these criteria and applying the bump and run pattern correctly, you can increase the likelihood of success in capturing reversal signals in the forex market.