High Low Bar Count with Trend Continuation and Reversal Statistics

In this study we are trying to work out it, after a run up or down in a stocks share price, what is the probability of a reversal or trend continuation, and if there is an opportunity, how much will the share price reverse or continue in its trend.

Is the share price movement random? Can a trader expect for the trend to continue? So to add to this contribution I thought it prudent to see if there is any value in, and what is the statistics and probability of, a continuation of a trend or the reversal of a trend.  We will look at each bar in reference to its previous bar and see where there is opportunity if any.

This concept, idea or thought is not a new one. Rather it is as old as the hills. The point of the article is to put it in a clear format so a trader can provide context around their next trade. If the stock has moved up, say 4 days, the reader will know what the probability is for the trend to continue and by how much. Knowing this provides the trader and investor a realistic share price target. We all know each stock is different and this concept provides some sort of structure to when to take profits or when to wait on the side lines.

We will look through history with the stock price. There are some problems with this in that the volatility of the stock can change through time. So to help reduce that difference, we have provided a min movement figure and the idea is that this will capture even the movement when the volatility is low.

We also need to create and turn it from theory into a trad-able point of view. Information on how much money can be made and what is the probability of the investor making an amount of money.

To begin with we will look at higher highs or higher lows with a holding period of 10 days. What this means is that when the stock is moving higher with higher highs or higher lows from the signal date. From the Signal date, we will study the next 10 days to find the highest high and the lowest low for our analysis. The signal date we use is the high price of the signal date, to the highest high in that 10 day period to find out the statistics on a trend continuation and for a trend reversal we use the low of the signal day, and then find the lowest low within that next 10 day holding period. There is no logical use for a 10 day period nor optimization used for the holding period, it just gives the stock an amount of time to move.

Whilst there are times in history where the stock has run up with a greater number of higher high or higher lows we have selected the run up based on where in history the occurrences were greater than 10. To give perspective if you have say 9 higher highs or higher low consecutive bars there will be less times in history that occurred. Whereas a bar count of 4 is a lot more common. So to make it trade-able we need a high amount of occurrences and also it will provide more accurate statistics as we are dealing with a large number of occurrences. For statistics we need a high number of occurrences to provide some sort forward guidance.

Symbol	Bar Count	Occurrences	Stat Trend Continue(%)	Min Mov(%)	Avg Mov(%)	Stat Trend Reverse(%)	Min Mov(%)	Avg Mov(%)
AAPL	4	170	59.7633	0.0790	5.5000	98.2249	0.0170	7.9000
EWA	5	62	57.3770	0.1000	2	100	0.0980	3.3000
BA	6	74	54.7945	0.1300	3.3000	100	0.0300	4
TLT	8	20	68.4211	0.3500	2.3000	100	0.0670	1.8000
TSLA	5	22	52.3810	0.5500	5.6000	100	0.2900	9.2000
SPY	5	92	65.9341	0.0920	1.2000	100	0.0890	2.4000

Systematically going through the data above the reader can observe that using the one date we can identify that these different stocks have different bar counts. This means that currently AAPL has a 4 day count where it has higher highs or higher lows. With AAPL looking over the history of the stock this 4 bar count has occurred 170 times. Reading along that same line the reader can note that for AAPL there is a 59% probability of the trend continuing.  To clarify, as we are looking at the next 10 days after the signal date (which is a 4 bar count) the trend continued in some sort amount 59%. Excluding negative numbers the min return is 0.079%. To put figure in perspective and based on the day or writing this article the share price high was $119.43, there is a 59% probability that the share price will move a MIN amount of 0.079% to $119.52 over the next 10 days. The Average move after a 4 bar count is 5.5%. To put that into perspective, there is 59% probability that the Average share price will move from $119.43 to $125.99 over the next 10 days.

Moving along the same data we come to Stat Trend Reverse for AAPL of 98%. This means that over the last 170 occurrences that AAPL had a reversal within 10 days from a 4 bar count. The MIN movement for AAPL for a reversal was 0.017% making the reversal from the low of today’s data which is $117.94 to the MIN historical low price movement to $117.92. The average movement coming in at a low of 7.9% or $108.62.

So to really capitalize on this concept further the trader can look for stocks where there is a high probability of reversal or trend continue, and also look for stocks with a High Min share price movement.

Depending on the traders style of investing this is all interesting data. One of the take always is that based on the data output as the bar occurrences increase, the probability of the trend continuing, on average, decreases. This is nothing new every trader/investor knows this. But the point of the article is to provide context and provide a tradable opportunity. The higher the bar counts the higher probability that the stock will see some sort of pullback within 10 days. This pullback probability increases to 100% quite quickly. What it clearly shows is that there is opportunity for gains using the correct trading methods.