The bump and run reversal pattern appears after a fast and large price hike due to excessive speculation. The pattern starts with a lead-in phase in which the prices advance normally without any signs of excessive speculation. The trend line during the lead-in phase is moderately steep.

The second phase of the pattern is the bump phase in which prices increase rapidly compared to the first phase. During this phase, the trend line becomes at least 50% more steep compared to the lead-in trendline. Traders should validate the bump pattern by checking the max. height of the bump in relation to the lead-in trendline. The distance from the highest point of the bump to the lead-in trendline should be two times (or more) the distance from the highest high in the lead-in phase to the lead-in line.

After prices reached their peak and start to decline towards the trend line, the chart starts to show the right side of the bump. Volume expands after the advance forms on the left side of the bump. The run phase starts when prices reach the lead-in trend line. Sometimes the prices bounce from the trend line before breaking passing it. After the passing the trendline, sometimes the price also retracts to the trend line which is now also the resistance level. The bump and run reversal pattern can be used for all types of trading, from daily to monthly, with the understanding that the movement is unsustainable for a longer period of time.

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ChrisDouthit
ChrisDouthit

The founder of OptionStrateigesInsider.com has a long history with options and an extensive education in finance. Holding an MBA and multiple finance degrees, Chris has put in the time and effort to learning the market fundamentals.