Back Testing Chart Patterns : Most Profitable Chart Patterns

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.