Back testing chart patterns to determine the most profitable chart patterns – A study and research conducted by the bulls arena trading technical research committee.
Over a 12-month period, the following back test is run on the same set of stocks, currency pairs, and commodities.
Back test report and test sheet are included for reference.
Back tests are only performed on patterns that have the highest statistical likelihood based on our previous filter testing reports. As per the report published in our technical research annual meeting, the following six chart patterns were selected out of the twelve most common patterns based on net performance.
Selection Table For Back Testing
| S.NO. | Chart Pattern | Back Testing |
|---|---|---|
| 1 | Double Top | Selected |
| 2 | Double Bottom | Selected |
| 3 | Rectangle | |
| 4 | Rising Wedge | |
| 5 | Bullish Flag and Bearish Flag | Selected |
| 6 | Symmetrical Triangle | |
| 7 | Ascending & Descending triangle | |
| 8 | Bullish Pennant and Bearish Pennant | Selected |
| 9 | Cup and Handle | |
| 10 | Head and shoulder | |
| 11 | Rounding Top and bottom | |
| 12 | Falling Wedge |
Back Testing Chart Patterns Data
Back tests were performed on the chart patterns listed below, which demonstrated the highest statistical reliability.
- Bullish Pennant
- Bearish Pennant
- Bullish Flag
- Bearish Flag
- Double Top
- Double Bottom
As a performance matrix, three major factors are used to perform back tests:
Net Loss / Gain %
This is the net percentage of total gain or loss over a 12-month period for the pattern under consideration.
Probability of Profit ( POP %)
Total probability of profit for a specific chart pattern expressed as a percentage; for example, if a chart pattern has a POP of 50%, it simply means that the pattern is profitable half of the time or 50% of the time.
Max Drawdown %
Max Drawdown% denotes the greatest loss that occurred for a chart pattern over a 12-month period; it is the greatest loss that occurred while trading with that particular chart pattern.
Data For Back testing
Chart Patterns Back Testing Analysis
According to the back test results of stock chart patterns, the Bullish pennant clearly stood out with a net gain of 50.25% and a win rate of 58.34%. It is also worth noting that the maximum drawdown for the bullish pennant is very low (2.412%), making the pennant pattern the best pattern for trading.
Pennant is followed by the Bullish flag pattern, which also had a very good overall performance with a net gain of 41.176% and a win rate of 58.34%.
The rest of the patterns are also very profitable, as shown in the graph below.
- Bullish Pennant
- Bullish Flag
- Bearish Pennant
- Bearish Flag
- Double Top
- Double Bottom
Back testing chart patterns report for twelve months data –
To get the complete back test sheet for back testing chart patterns, click the download button.
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