Bump And Run Reversal Complete Guide

What is Bump And Run Reversal?

The Bump and Run Reversal (BARR) Top is a powerful bearish reversal pattern identified and popularized by Thomas Bulkowski. It characterizes a price move that accelerates too quickly, creating a speculative bubble that eventually collapses. The pattern is divided into three distinct phases: the lead-in, the bump, and the run. During the lead-in phase, the price follows a steady uptrend with a trendline angle typically between 30 and 45 degrees. This phase establishes the baseline for the trend and should ideally last at least a month. The bump phase begins when the price trajectory steepens significantly, often reaching an angle of 45 to 60 degrees or more. This represents a period of excessive speculation. A critical technical requirement for a valid BARR is that the vertical distance from the highest peak in the bump phase to the lead-in trendline must be at least twice the vertical distance from the highest peak in the lead-in phase to that same trendline. Volume typically surges during the initial acceleration of the bump but tends to diminish as the price reaches its ultimate peak, signaling exhaustion. The 'run' phase is triggered when the price falls back and closes below the lead-in trendline. According to Bulkowski’s 'Encyclopedia of Chart Patterns,' the BARR Top is exceptionally reliable, with a failure rate of only 19% in bull markets. The average decline following a confirmed breakout is approximately 19%. Traders often set their ultimate price target at the level where the lead-in phase first began. The pattern is most effective on daily or weekly charts where the trendline has been tested multiple times, providing a clear exit for longs and an entry for short sellers.

Identification Rules

1. The lead-in trendline must have an angle between 30 and 45 degrees.
2. The bump phase angle must be significantly steeper, usually between 45 and 60 degrees.
3. The maximum height of the bump must be at least twice the maximum height of the lead-in phase relative to the trendline.
4. A valid reversal is confirmed only when the price closes below the lead-in trendline.

References

• Thomas N. Bulkowski (2005). Encyclopedia of Chart Patterns.
• Steve Nison (2001). Japanese Candlestick Charting Techniques.

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