What is a bump and run pattern?
A bump and run chart pattern is a reversal pattern. It occurs after a large uptrend. With this pattern the stock will have a big run up on price. Eventually big investors began to sell. This causes investors to panic and a selloff of the stock will occur.
Why does this strategy work? It is a simple idea, what goes up must come down. As investors see the stock go up they continue buying it helping push the price up. When a few big players sell their stock it pushes the stock down below support. This breads panic and more and more investors began to sell their stock driving the price down lower. volume Volume will typically be high when the uptrend is in place. When the price has a big bump upward, however, price will typically decrease. Volume will spike again when the stock breaks bellow support and the selloff begins. trading the pattern Professional traders may choose to short or do another bearish strategy when the stock breaks the support of the original uptrend. In this example many investors might have chosen to short this stock when it broke $5.25. The thing to remember about this pattern is that it is risky while the pattern is forming. The stock is technically in an uptrend until it starts making lower lows and lower highs. Trading it too soon may mean that you are shorting a stock that keeps going higher. For this reason a conservative trader may want to wait on the sidelines until the stock starts making a definite trend again. Aggressive traders may want to short the stock on the first break to the downside. Other Chart Patterns Some other patterns to look at are. Acending Triangle - A bullish triangular pattern Bearish Rectangle Pattern - A common pattern in a downtrend Bearish Triangle - A bad omen for the market
|
