Bump and Run Pattern Strategy: Chart Analysis Secrets

The Bump and Run pattern is a remarkable reversal pattern that will help you spot the end of a trend and the beginning of a new one. Moreover, the Bump and Run trading strategy is a very aggressive market strategy that seeks to capitalize on fast-moving markets.

Our team at Trading Strategy Guides is working hard to develop the most comprehensive guide on different chart pattern strategies. To understand the psychology of a chart pattern, please read our article on: Chart Pattern Trading Strategy Step-by-step Guide.

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The Bump and Run chart pattern is part of the same pattern category similar to the Triple Top chart pattern.

We favor running the Bump and Run trading strategy on the lower time frames, preferably the 1-hour chart. After extensive backtesting, we have found that the 1-hour time frame tends to produce a more reliable Bump and Run reversal pattern.

Now…

Moving forward, we will discuss the attributes of the Bump and Run reversal top and bottom, the angles of the uptrends, as well as the time spans and heights of the Bump and Run chart pattern.

What Is a Bump and Run Reversal Pattern?

The first portion of the Bump and Run chart pattern represents an uptrend. Moreover, the swing lows of the uptrend can be connected with a trendline, referred to as the lead-in trendline.

Note: During this stage, the price formation of the Bump and Run reversal will move very close to the lead-in trendline.

Furthermore, the bump defines the second part of the Bump and Run chart pattern. The bump is simply an acceleration of the prevailing uptrend.

During this Bump and Run reversal section, the price will depart from the lead-in trendline and move in a parabolic trajectory. At this stage, you can also draw another trendline connecting the lows created during the Bump move.

Based on the textbook rules, a sell signal is triggered when the lead-in trendline is pierced to the downside.

Bump And Run Chart Pattern
Bump and run pattern 1

Other observations about the Bump and Run reversal are the following:

  • The lead-in trendline angle is supposed to be about 30 to 45 degrees.
  • The Bump angle is supposed to be between 45 and 60 degrees.

You don’t need to worry about working the percentage of the angle because, for the most part, you just need to understand what the Bump and Run chart pattern formation looks like.

The Bump height, which is the difference between the lead-in trendline and the top of the Bump and Run reversal price, should be at least two times the height during the initial stage of the uptrend.

In the figure below, we’ve highlighted a real example of a valid Bump and Run chart pattern:

Bump And Run Chart Pattern Example
Bump and run pattern 2

Now, let’s see how you can effectively trade with the Bump-and-run trading strategy and how to profit from basically using no technical indicator.

How to Use the Bump and Run Pattern Trading Strategy – Sell Rules

The Bump and Run trading strategy is one of the best reversal strategies you’ll probably need to learn.

Furthermore, the psychological reason why the Bump and Run reversal is such a robust pattern is that it takes advantage of the result of excessive speculation. This propels the price too swiftly to the extreme, which leads to a reversal.

Moving forward, we present the sell-side rules of the Bump and Run trading strategy.

Step #1: Identifying the Uptrend’s Birth and Surge

Begin by spotting the initial uptrend, the lead-in, and wait for a noticeable acceleration in this uptrend, known as the bump. This stage is crucial for setting the stage for the pattern’s development.

Identifying The First Uptrend And The Uptrend Acceleration.
Bump and run pattern 3

Note: A valid Bump and Run chart pattern has the first section of the trend drifting upwards very slowly, and in the second part of the trend, we need to see momentum picking up and the uptrend moving to the extreme.

Step #2: Crafting the Uptrend’s Blueprint

The way you draw the trendline can be a subjective matter because there are several ways to do it, and neither of them is better than the other. Ultimately, it all comes down to your experience and understanding of the price action.

Draw the initial lead-in trendline by connecting the lows during the early trend phase. Then, add a second trendline following the lows of the uptrend’s acceleration period. This step is essential for visualizing the pattern’s progression.

Drawing The Lead-In Trendline Example.
Bump and run pattern 4

So far, so good.

Now, we move to the second component of the Bump and Run chart pattern and the third step of the Bump and Run trading strategy. This is also related to our entry technique.

Step #3: Strategic Sell Points – Dual Entries

In order to maximize our potential profits, we like to implement an entry technique as follows:

  • Sell Entry 1 once the first trendline is broken. We like to wait for the candle to close below the trendline to confirm a valid breakout.
  • Sell Entry 2 once the Lead-in trendline is broken. Please wait for confirmation of a valid breakout. We like to wait for the candle to close below the trendline.

These points mark critical junctures in the trading strategy.

Implementing An Entry Technique With Two Sell Entries.
Bump and run pattern 5

During this stage, the market is in the process of reversal, and the “Run” component of the Bump and Run chart pattern is formed.

The Run phase is identified when the price falls and breaks below the Lead-in trendline, which also confirms that we’re in the process of reversing the previous trend.

Moreover, the next logical thing we need to establish for the Bump and Run trading strategy is where to take profits.

See below…

Step #4: Take Profit at the Lead-in Trendline Starting Point

The ideal profit target for the bump-and-run trading strategy is at the Lead-in trendline starting point. In other words, take profits at the exact same level you use to draw your Lead-in trendline.

We encourage you to experiment with different take-profit strategies because the bump-and-run chart pattern can also lead to a severe reversal that can be the starting point of a big bearish trend.

Taking Profit At The Lead-In Trendline Starting Point.
Bump and run pattern 6

The next important thing we need to establish is where to place your protective stop loss.

See below…

Step #5: Defensive Positioning – Dual Stop Losses

Since we’re splitting our trade into two trades, we will have two protective stop losses. The initial stop loss is placed just above the swing high created by the uptrend acceleration phase.

Furthermore, the second protective stop loss is placed above the candle, which breaks the lead-in trendline.

We’re adopting a very conservative approach here because if we truly have a reversal, we consider that the market should not look back. In this regard, we keep our SL very tight.

Positioning Dual Stop Losses.
Bump and run pattern 7

Now, we also recommend that once your second entry gets triggered, move your initial stop loss to the exact location as the SL2. This guarantees that even if you get stopped on your second entry, you’ll still be left with some profits.

Moving The Sl1 In The Same Location Of The Sl2.
Bump and run pattern 8

Note: The above was an example of a SELL trade. Use the same rules, but in reverse, for a BUY trade. However, we will use the inverse Bump and Run reversal this time. The figure below shows an actual BUY trade example using the Bump and Run chart pattern.

Bump And Run Pattern Trading Strategy For A Buy Trade.
Bump and run pattern 9

Conclusion

The Bump and Run chart pattern is another high-probability trade setup many professional traders overlook. It would be best if you were very comfortable trading reversal patterns, especially the Bump and Run reversal, because the market moves very fast during the developing process of this big chart pattern.

If you’re slower at reacting to fast-moving markets, you can trade the Cup and Handle chart pattern, which is a continuation pattern.

Thank you for reading!

Please leave a comment below if you have any questions about the Bump and Run Chart Pattern Strategy!

Bump and Run Pattern Strategy Video

Bump and Run Pattern Strategy Info-graphic Download

Bump And Run Chart Pattern Strategy
Bump and run chart pattern

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