Bull Hook is defined as a day in which the open is above the previous day's high and the close is below the previous day's close with a narrowing range. The Bull Hook, as suggested by its name, is said to be a bullish indication and in most cases will be followed by a move to the upside the day or days following the Hook. As you will see by the tests run in this report, this is not always the case.
To test this pattern a trade is taken on an Opening Range Breakout the day following the Bull Hook. Opening Range Breakout is defined as a trade taken at a predetermined amount above or below the open. The results of this test are shown in the Table entitled, "Bull Hook Day".
This Table shows a bias to the upside after the pattern. Eight out of 16 trades were profitable as buys. The most conclusive evidence of an upward bias after the Bull Hook is the amount of Gross Profits that were accumulated on the buy side; $30,051 on the buys and $7,854 on the sales. Clearly this demonstrates an upward bias after the pattern.
The Bear Hook showed cumulative profits for all markets at $41,768 on the sell side and $13,728 on the buy side. A bit more convincing bias when compared to the Bull Hook. When you exclude the S+P from these figures there are only $480 in profits on buys after a Bear Hook.
Observation of market action is recommended after either pattern. A quick move (Early Entry) in the direction of the bias off of the open is the ideal. A move of this type against the bias would suggest caution. The Bull Hook also is enhanced when the market opens lower on the day following. This provides greater potential and goes along with a natural inclination of the market to fill the gap between the open and the previous day's close. If the closing price of the Hook Day is then traded continuation to the upside is likely.
In general, the Bull Hook did not display the consistency of the Bear Hook. Nevertheless, the test results provide enough evidence of a predictable bias after the Bull Hook. Maybe just a hint but sometimes that is all that is necessary.
The Bull Hook integrated with trend and price action studies is useful. Ideally, if trend is up, the open is lower than the close of the Bull Hook, and Early Entry Buying occurs, a high probability trade is provided. Also, if an important Angle of support is in the vicinity of this type of price action confidence is added.
Another thing to consider when assessing the trade is whether a large Buying Extreme had occured in the location of the open on any day beforehand. Quite naturally support will come into the market at this point.
It should be noted that this is one of the best results on buys above the open that I have seen in the Cattle market. 78% on a 25 point move above the open after a Bull Hook is extraordinary. Win/Loss ratio also remained reasonably high.
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