Count Money Skiing While Others Bump-and-Run Away(BARR 2023)

Count Money Skiing While Others Bump-and-Run Away(BARR 2023)

The bump-and-run reversal pattern is one of the essential reversal patterns every trader must know. This tool helps us locate the market’s climax or find its deep canyon.

Pejman Zwin

Content

With this knowledge, you can glide to smooth profits while others collapse in the snow. Pay special attention to this strategy, because it can make you tens of thousands in no time.

All financial markets have two sides, the buyers and the sellers – Bulls and Bears. One loses while the other wins. The million-dollar question is, How can one predict who will win or lose? Does the bump-and-run reversal pattern help us with the answer?

Hiking up a mountain is fun, but watching the scenery from high up is much cooler. However, there’s a problem; as Rene Daumal Said: “You cannot stay on the summit forever; you have to come down again.” That doesn’t mean that the ride down the hill can’t be fun!

Bump-and-Run Top Pattern

While at the peak, you must know that there aren’t many buyers willing to buy, which will cause the descending phase afterward. After fully understanding the pattern, you can enjoy the adrenaline flowing through your veins when the price falls and profits appear in your account balance.

Not that I’ve made the fattest profits, but I have had my share of memorable experiences with the bump-and-run reversal pattern. By trading with this pattern during the Bitcoin crash in May 2021, I shorted $3,000 and got $10,000 in less than a month on BTC/USDT. I left the market confident, with a big chunk of money. Let’s learn more about this beast of money-making patterns.

Bump-and-Run Top Pattern

Bump-and-Run Top Pattern

The bump-and-run reversal top pattern forms when, after a gentle upward trend, a more aggressive one appears on the chart. The price pivots at the peak and then falls like an avalanche.

In this scenario, only professional skiers/traders survive and thrive with considerable portfolio gains. In the following section, I will teach you how to make money when there’s blood in the snow!

This pattern forms when the price rallies too far up. People second-guess themselves buying at such high prices while sellers sell confidently, causing a downward trend. This means you can see a clear reversal in the bump-and-run top pattern. Although this pattern is considered a single entity, it consists of three separate parts or phases:

1) Normal and steady trend, called the “Lead-in Phase.” Imagine it as walking up a mountain.

2) Market participants going crazy with greed, called the “Bump Phase.” You can imagine this one as an ascent to the mountain’s peak.

3) The price falling and causing bloodshed of candles, called the “Run Phase.” At last, you ski down the snow, collecting profits on your way.

collecting profits on your way

Now, if you want to make money while there’s blood on every candle, you must focus closely on all the phases.  Starting with the first, the lead-in.

Lead-in Phase

Lead-in marks the start of our mountain journey. In this phase, the price is in an upward trend. Banks are happy, the market maker is comfortable, and traders are delighted. The price has a smooth upward slope. For it to be valid, you must see at least two bottoms and two highs in the lead-in phase.

In this phase, you can commonly see the three rising valleys pattern form, indicating that buyers will push the price up with a sharper shift. You must also find the support trend line. To see where the support trend line is, you just connect lead-in lows, and voila – there’s your support trend line.

Since we are in a steady upward trend, the buyer majority keeps high hopes for the future. They buy when the price hits the support trend line, and sellers sell when it increases. You must also define the lead-in width. The lead-in width is the price difference between the highest high and the support trend line. The lead-in width and the support trend line will both be important in the upcoming phases.

The steady upward trend continues for a while, but eventually, people get greedy and want more – so they try to buy more than before and inject money into the market. The lead-in trade volume is normally low, but you can find a greed footprint by the volume indicator.

This process is accelerated when momentum traders jump on board and push the prices higher with a rise of volume opening the bump breakout. But remember: a volume increase doesn’t always translate to a price increase. Don’t just jump on the buyers’ boat whenever you see a volume increase.

(Pro tip: volume increase might be due to hedge funds hedging positions, banks managing their quarterly trades, and many other financial reasons. So market volume change alone doesn’t necessarily lead to a price change; you must consider many other factors to gain your trading edge.)

Buyers’ greed and hype cause the price to increase dramatically due to money injection into the market. Brace yourself; we are about to climb to the top.

The Bump Phase

Realizing that you are in the bump phase isn’t that difficult. These signs can help you identify a dangerous climb to the top:

  • More trade volume in the market
  • More buy pressure coming into the market.
  • Trendline’s sharp slope shifts upward.
  • Price corrections are brief and mild.
  • The bump’s height must be at least twice the lead-in width to be a valid peak. (To measure the width, draw a vertical line from the peaks to the support trend line.)
  • A clear resistance zone ceiling rejects the price ones or more.

With the rise in trading volume, a sharp increase in the upward trend slope begins the bump phase. Extreme buyer’s hype explodes the markets, and prices jump high with mild price corrections. Everybody is excited and wants to climb up the mountain, but not all of them know about what is to come.

At the end of the bump phase, the upward trend loses momentum, forming a price ceiling. There are no buyers left out there to push the prices higher, and if the price tries to rise again, a resistance zone ceiling rejects it, and a double-top pattern sometimes appears.

In other cases the price might rise and break the resistance zone. Afterward, the price pivots above the resistance zone, resulting in a bull trap which causes many amateur bulls to lose money. At that time, you must know that you are standing on the mountain peak. Connect the lows of the bump phase to get the bump trend line.

After the summit, the price decreases, breaking the bump trend line. As you ski down with the price, be careful; after breaking the support trend line, an avalanche marks the beginning of the run phase.

All the data I provided sets you apart from other market participants. When you reach the peak, you know what is about to come. You prepare to ski on a downward trend, and while others fall, you break away from them and glide down the hill.

Run Phase

It’s finally happening… the bloody ski race to the bottom. The professional traders know that now is the time to sell and exit the market. Prices sometimes hesitate, like a child who wants to go down the slide for the first time and is a little stressed, turns back and looks at their parents.

After breaking the support trend line, the price might try its luck to test the support line, which is now a resistance. A pullback to the trendline further increases the validity of the pattern. With the pattern validated, the price heads down again.

I looked back at the diagram, and the thing that caught my eye was the similarities between the support and bump trend lines we drew, and another market reversal pattern called the fan principle pattern.

Confucius’ saying goes, “I hear and I forget. I see, and I remember. I do, and I understand.’’  Let’s do a quick review by looking at the map of our journey, then a practical example.

the resistance zone

You can see the resistance zone, the three phases, the trend lines, the lead-in width, and the valid bump width. In the following part, I will discuss the highly important subject of trading volume in the phases. Make sure you pay extra attention to it.

The trading volume can be average or even low in the lead-in phase. Starting the bump phase, a rise in the trading volume increases the pattern validity. With the increase in sales volume, the bump rollovers and starts the run phase. Following Confucius‘ wisdom, we finished seeing; it’s time to do! Let’s take a look at a real-world application of this pattern.

Trade on the Bump-and-Run Top Pattern

Trade on the Bump-and-Run Top Pattern

Now is the time to learn how the magic works. Like professionals, we open our short position when the price breaks the support trend line. Don’t worry if after breaking, the price retests the support trendline, which now is resistance; it only validates the pattern further. Of course: safety first.

There are three approaches to setting stop losses in this pattern, each with a different risk-to-reward ratio. In the first (and least risky) one, you place your stop loss on the ceiling of the resistance zone above the mountain. This is the standard form. The second approach with a higher risk-to-reward ratio is to set it above the last minor pivot before your entry point.

The third method, with the highest risk-to-reward ratio, would be placing it above the breakout candle. As for your take profit price, equal to the distance between the mountain peak and the support trend line, go below your entry price – that’s where you should take profit.

distance between the mountain peak

Ten thousand dollars, that’s how much I made with the single trade I’ll explain below. The chart below shows the British Pound / US Dollar in the one-hour timeframe. (GBP/USD/1h) I noticed a beautiful upward trend followed by a rise in trading volume.

I connected the lead in lows and drew my support trend line. Next up was the bump trend line, which I drew like the last. I saw the price reach the summit and get rejected, then rise again only to be rejected by the ceiling once again.

the bump trend line

I knew, at this point, that I was at the top. I waited for the fall, and when it arrived, I was ready. I opened my short position at 1.228 USD just below the support trend line and placed my stop loss above the last minor pivot at 1.236 USD.

It was profit time, so I set my take-profit price equal to the peak to support width below the support trend line at 1.215 USD. The price dropped as expected with odds in my favor and hit my take-profit price. I ended my day well, with ten thousand dollars at hand.

Although the bump-and-run top pattern has huge money-making potential, its counterpart has the same, if not more, power. Let’s take a look at it.

Further reading

Bump-and-Run Bottom Pattern

Bump-and-Run Bottom Pattern

The bump-and-run reversal bottom pattern is similar to its top counterpart, except all phases in this pattern are reversed.

We were looking for the bump-and-run top pattern in upward trends, and now, to find the bump-and-run bottom, we have to wait to see this pattern in the downward trend, which signals the end of the downward trend.

This pattern consists of a “bump” followed by a “trend” that finally leads to a trend reversal. You can use the bump-and-run bottom pattern as a signal to enter a long position or exit a short position. If you see this pattern on the chart and remain in a sell position, you have built a house of cards.

However, it is essential to have risk management techniques and confirm the validity of the pattern before setting any trade. How can we do this? First, we should examine the phases of this pattern.

bump-and-run bottom pattern

As with the bump-and-run top pattern, the bump-and-run bottom pattern has three phases, the lead-in, the bump, and the run. You can see a steady downward trend in the lead-in phase followed by a more intense one in the bump phase creating the lowest low.

With the lowest low hitting the support zone, the whole market returns and starts an uptrend. The run phase begins while we are on this upward trend.

The Bump-and-Run Bottom Pattern Phases

The Bump-and-Run Bottom Pattern Phases

Let’s imagine you are walking down into a valley with a group of people on a journey. The map in your hand says that you are in a steady downward trend with a mild trend line slope at the beginning of this path, creating lower highs (LH) and lower lows (LL). This phase of continuous downtrend is referred to as the lead-in.

This lead-in part must have at least two minor peaks and two minor valleys – and even, in some cases, makes the three falling peaks pattern, translating into three minor peaks in a downward trend. Connecting these minor peaks creates a line: the resistance trend line. The resistance trend line to the lead-in lowest low makes the lead-in width.

After the lead-in comes the bump phase. During the bump phase, price goes down with a sharper slope while the trading volume increases. Sellers keep selling. Deeper and deeper valleys form until the price hits the support zone and forms the ultimate canyon, the bump.

Connecting the bump phase peaks provides us with the bump trend line. At this point, only a few people are still interested in selling, and a more significant shift of interest happens on the buyers’ end. Such low prices are so attractive for buyers; this buying pressure overcomes and changes the chart’s direction.

It is possible for sales to return and retest the support zone and create an iconic double bottom pattern or even an inverse head and shoulders pattern, which are classic reversal patterns. For the bump pattern to be valid, the distance between the bump’s lowest point and the resistance trend line has to be at least twice the lead-in width.

The chart pivots at the bottom and switches up, creating a hill followed by a mountain. You can see an increase in the trading volume at this stage. Since you had the map at the beginning of this journey, you expect what will come. This knowledge dictates that you take mountain climbing essentials. Thus you have the upper hand on the group.

Most traders fail to climb the mountain rise unless they are seasoned traders who can foresee what is about to happen. The price goes up after hitting the support zone and passes the bump trend line until it reaches the resistance trend line. Seeing the resistance trend line rejecting the price is expected at this point. After all, climbing the mountain rise is a challenging task.

In some cases, the price might correct itself slightly but then rises again and retests the resistance trend line. Eventually, the price breaks this trend line, marking the start of the run phase.

If you are one of the people with the right climbing tool, you can conquer this challenge like any other and make thousands while doing it. Now that we know about the shape and form of this pattern, it is time to learn more about trading with it.

the shape and form

Trade on the Bum and Run Bottom Pattern

If you’ve read the top form of this pattern, opening a long position on the bottom version wouldn’t be so difficult. With the resistance and bump trend lines drawn, you watch the price closing into the resistance line.

If you saw the price breaking the resistance trend line (with a rise in volume), it would be wise to validate the trend line’s breaking and then open your long position. Taking profit is also similar.

The price difference between the resistance trend line to the bump lowest low added to the resistance trend line breaking point. That would be the take-profit price, as shown in the diagram.

the take-profit price

As with this pattern’s counterpart, there are three approaches to placing a stop loss. The standard is to set all the way down on support zone flooring. If you look for a higher risk-to-reward, place it below the last minor pivot before your entry.

You can also choose the highest risk-to-reward ratio and set it below the breakout candle of the resistance trend line. I chose the last approach in my following trade example and made $8000 in doing so.

I was watching the XAU/USD (Gold) chart in the 5-minute timeframe closely, when I noticed the lead-in and the bump phase. I realized with a reversal run coming, my long position has the potential to make thousands.

I drew the resistance support line and waited for the price to break it. When the price successfully retested the support, it started a strong uptrend. I saw the price break the resistance trend line unbelievably fast and a breakout candle close above it. I opened my long position at 1652 USD and placed my stop loss behind the breakout candle at 1648.2 USD.

With the resistance trend line to the bump added to the resistance trend line breakpoint, I put my take-profit price nice and easy at 1662.8 USD. The result? $8000 added to my portfolio.

bump-and-run reversal pattern

Sometimes, the bump-and-run reversal pattern is not a reversal pattern at all. In the bigger picture, it may continue the pre-pattern direction.

Further reading

Bump-and-Run Reversal Pattern as a Correction

Bump-and-Run Reversal Pattern as a Correction

This pattern is why the pattern name changed from BARR to BARF. BARR stands for bump-and-run reversal, whereas BARF is bump-and-run formation.

This is because the bump-and-run reversal pattern, on bigger scales, might not change the market direction. Sometimes it acts as a continuation pattern in the bigger picture. You can see this pattern over longer time frames and more extreme up/downward trends. The key difference is that, in most cases, we don’t see big eye-catching trading volumes this time. Let’s take a look at the diagram.

big eye-catching trading

This is an example of the pattern in a larger time scale. You can see all three phases of the bump-and-run reversal pattern surrounded by two extreme downtrends. In fact, if you cover the first downward trend, you will see our good old friend bump-and-run top pattern. Our field of view is simply larger than before.

Using the same validations, indicators, and trading map I provided, you can trade with it and make a good profit. The bump-and-run bottom correction pattern is also important to mention.

bump-and-run bottom correction

Not that much differs from the last; it’s only the reversed version of the top pattern. You can consider a bump-and-run bottom a continuation pattern in larger scales, starting with an up trend, then the good old bum-and-run bottom pattern followed by another upward trend.

You can open long positions on this one with the same rules and bits of advice I mention at the bump-and-run bottom pattern. As I said before, you rarely can see considerable trading volume rises when the bump-and-run reversal pattern plays the correction role.

We all can make money using the knowledge we’ve learned today. It is important to remember and respect people who researched and found out about all these money-making machines. In the following section, I mention scientists’ accurate money-making formulas that you can use with the bump-and-run reversal pattern.

Further reading

Research by scientists on Bump-and-Run Reversal Pattern

Research by scientists on Bump-and-Run Reversal Pattern

Thomas Bulkowski introduced the bump-and-run reversal pattern in 2008 with his book, Encyclopedia of Candlestick Charts.

The pattern was initially introduced as the bump-and-run formation (BARF), but he later renamed the bump-and-run reversal (BARR). In the coming section, we are going to learn about his results and how to use them in the market.

Research by scientists on Bump-and-Run Reversal Pattern

Thomas Bulkowski is a well-known investor and market researcher. You may remember other chart patterns he identified, such as Islands, Triangles, Cup and Handle, and many others. He has designed many trading scenarios using the bump-and-run reversal pattern. Bump-and-run reversal pattern conditions, slopes, accurate take profits… he researched them all.

Through his analysis, Bulkowski found that you can calculate your accurate take profit prices with his formula. He states in his formula about the bump-and-run top pattern:

Bump peak price – lead in lowest price = X

Entry price – ( X * 0.78) = take profit price

bump-and-run bottom pattern take profit

As for the bump-and-run bottom pattern take profit, his formula was as follows:

The lead in highest price – bump lowest = X

Entry price + (X * 0.68) = take profit price

profit price

Bulkowski also dictated that the standard slope of the lead-in phase ranges from 30 to 45 degrees. This is the same angle the support trend line of the top pattern creates crossing the horizon. In the case of the bump-and-run top pattern’s bump trend line, the slope normally ranges from 45 to 60 degrees.

the slope normally ranges

About the bump-and-run bottom pattern, he found the exact details about the bottom pattern: 30 to 45 degrees for the resistance trend line/lead-in phase, and 45 to 60 degrees for the bump trend line.

Further reading
FAQS

FAQS

What is the Bump-and-Run Reversal pattern?

The bump-and-run reversal pattern is a chart pattern traders often use to identify potential market reversals. It is characterized by a strong uptrend or downtrend followed by a period of higher volumes, after which the trend reverses.

How do I identify the Bump-and-Run Reversal pattern?

To identify the bump-and-run reversal pattern, look for an asset that has been on a strong uptrend or downtrend and is starting to show signs of slowing down. When you see the bump-and-run reversal pattern forming, it may be a signal that a market reversal is imminent.

How do I trade with the Bump-and-Run Reversal pattern?

To trade with the bump-and-run reversal pattern, you’ll need to be focused and ready to shift your strategy when the time is right. Look for an asset that has been on a strong uptrend or downtrend and is starting to show signs of declining momentum in the ongoing direction. Consider entering a short position when the price reverses downward or a long position when the price reverses upward.

Can the Bump-and-Run Reversal pattern be used in any market?

The bump-and-run reversal pattern can be used in any market that is characterized by price trends and reversals. This includes markets such as stocks, forex, and cryptocurrencies.

Is the Bump-and-Run Reversal pattern reliable?

Like any technical analysis tool, the bump-and-run reversal pattern doesn’t assure future price movement and should be used in conjunction with other analysis techniques. It is important to do your own research and use a combination of tools and strategies to make informed trading decisions.

How long does the Bump-and-Run Reversal pattern typically last?

The duration of the bump-and-run reversal pattern duration can vary depending on market conditions and the specific asset or security being traded. The pattern generally lasts anywhere from a few days to several weeks or months.

Can the Bump-and-Run Reversal pattern be used for long-term trading?

The bump-and-run reversal pattern is typically used for short-term or intermediate-term trading rather than long-term investing. However, it may be possible to use the pattern as part of a longer-term trading strategy, depending on your goals and risk tolerance.

Conclusion

I hope this lesson on the bump-and-run reversal (BARR) pattern was helpful! As you can see, it’s a useful pattern in your trading toolkit, as it can help you identify potential reversals in the trend. However, it’s important to remember that no single pattern guarantees future price movements, and it’s always important to use proper risk management techniques when trading.

Confucius‘ quote emphasized the importance of practice; bear in mind that you have to practice your skills in order to master the art.  And with that, we’ll bring this lesson to a close. I hope you enjoy riding the slopes.

Further reading