2020issue C0822-26
Late double-bottom entries after throwbacks
A double bottom is a long hypothesis only after a close above the breakout line. This archive comparison ranked the next-open standard case against later buys after the line was rebroken, including a throwback lasting more than five trading days.
- A double bottom is treated as confirmed only after a close above the breakout line. The standard-case hypothesis then buys at the next open, with a stop a few cents under the lower bottom.
- Later buys after one or two closes back below the breakout line ranked weaker than the standard case on both S&P 500 and Russell 3000 names.
- A throwback lasting more than five trading days before a close back under the line was the strongest delayed-entry filter, though only 144 S&P 500 cases appeared.
- Kelly criterion ranked each rule by combining percent profitable with win/loss payoff so a cheaper late print was not treated as an automatic upgrade.
The standard-case hypothesis
A double bottom is a two-trough price structure. It is treated as a long hypothesis only after a close above the intervening peak, the breakout line.
The standard-case rule buys at the next open after that confirming close. The stop sits a few cents under the lower bottom, and the profit target uses the measure rule, a distance equal to the height of the completed pattern.
Late entries after the line is rebroken
The evaluation compared that standard-case entry with later buys after one or two closes back below the breakout line. Those cases include a throwback: a return of price toward or through the recently broken breakout line after confirmation.
Here the throwback is a delayed-entry filter rather than an automatic buy. One version required the throwback to last more than five trading days before a close back under the breakout line.
How the scan was bounded
The same rule set was scanned on S&P 500 and Russell 3000 names from January 1, 2000 through September 1, 2019, excluding periods when the 100-day SMA of SPY was below its 400-day SMA.
Universe filters required share prices between $20 and $500 and breakout-day volume of at least 100,000 shares. The assumed position was near $10,000.
What the ranking showed
On S&P 500 names the standard case produced 909 trades with 64.7% profitable, a 1.36% average trade, and a Kelly score of 0.217. One close below the breakout line cut those figures to 701 trades, 47.2% profitable, a 0.69% average trade, and a Kelly score of 0.092.
Russell 3000 results were weaker than the S&P 500 set. The standard case produced 2,311 trades with 58.4% profitable, a 0.54% average trade, and a Kelly score of 0.064, and the figures fell further after one or two closes below the line.
A throwback lasting more than five trading days before a close back under the breakout line was the strongest delayed-entry filter, with a Kelly score of 0.233 on S&P 500 names and a 2.07% average trade, though only 144 such cases appeared.
Buying cheaper after the line is rebroken can look attractive versus traders already long, but it also risks treating failed confirmation as a bargain. The tests treat that late dip as a separate, falsifiable entry rule rather than an automatic upgrade.
All readings on this track · 10 readings
- 1991GM support and resistance role reversal
- 2002Evaluating throwbacks and pullbacks after triangle breakouts
- 2002Spike-shaped double bottoms as a three-gate chart drill
- 2003Constructing bullish bottom patterns from structure and confirmation
- 2003Classifying breakout gaps by fill speed and throwback
- 2006The J-hook as two gates: rounded pullback and prior-high breakout
- 2006Evaluating double tops with a throwback clock
- 2007Check duration, breakout labels, and throwback timing before rectangle measuring rules
- 2016Confirmed double-bottom, later pennant, and throwback as separate checkpoints
- 2020Late double-bottom entries after throwbacks