Ah yes... the BARR formation. One of my personal favorites, as it is both simple and effective, and can be found commonly on multiple time frames. The Bump And Run Reversal (BARR) pattern indicates the reversal of an existing trend, whether it be short or long term.
A BARR pattern is easily spotted by drawing a single trend line that touches the lows of the move, while an inverted BARR pattern would touch the highs of the move. Its important that your trend lines be drawn to the tips of the candle wicks, should any be present.
From this initial trend, a secondary trend will branch off with an ideal angle of 30-45 degrees. It is this secondary move that is the bump of the pattern, and creates the instability in the initial trend.
As you can see from these charts, there are both bullish and bearish versions of the bump and run reversal. Bullish (Inverted or "bottom") BARR patterns form when excessive speculation pulls the price down too fast, forming a steep downtrend and an oversold scenario. Price then reacts/corrects sharply as buying pressure increases. Similarly, the bearish ("top") BARR pattern forms when excessive speculation pushes the price up too fast, forming an overbought scenario. Price then reacts/corrects sharply as selling pressure increases.
The BARR identifies speculative moves that cannot be sustained for a longer period of time. Because price action rises (or falls in an inverted BARR) very fast to form the bump, the subsequent reaction to the move can be just as volatile.
The Lead-In
The gradual slope that has formed where price is rising or falling, and forming a trend. During the lead-in, the price increases at an average pace, without excess speculation.
The Bump
The bump within the BARR can be identified by a steep increase/decrease in the direction of the existing trend. The bump creates its own demand line, which deviates progressively further and further away from the lead-in line. This forms the left side of the bump.
The Rollover
After the excessive speculation fizzles, price action begins to top. At times, a quick double top or a series of big upper wicks may form. A break (and close of the breaking candle) in the bump demand line confirms the beginning of the rollover. Price action then declines back toward the original lead-in line, and forms the right side of the bump.
The Run
The run begins when the pattern breaks support from the original lead-in trend line. Prices will sometimes hesitate or bounce off the trend line before breaking through. Once the break occurs, the run phase takes over, and the incline/decline continues. After the downside break of the lead-in line, it may retest the former support level, now turned resistance.
When I first discovered the BARR pattern, I was already very familiar with the rising wedge. As a result, I saw the BARR everywhere I looked. I began to understand their similarities more and more as I traded the two. You will as well, I'm sure.
The BARR is essentially about trading tops and bottoms. By both identifying and executing the pattern correctly, you are effectively trading the point of reversal. Godspeed, traders.
Labels: Technical Analysis
