Lower Highs And Lower Lows Pattern Trading Strategy (Setup and Backtest Analysis Insights)

The lower highs and lower lows pattern signals a downtrend. Is this likely to continue or reverse?

In almost all markets, the lower high and lower low pattern signals a short-term reversal. We develop multiple lower high and lower low trading strategies.

We backtest the following trading rules:

We describe the trading rules both in plain English and by using a chart (Shown in the image-1 below).

The chart has two lower highs and lows in a row (lower high and low candlestick). The second candlestick marks a pretty strong reversal. As you’ll see in this article, this is a short-term reversal pattern. If you are familiar with technical analysis, you might argue that the pattern could be similar to a “wedge”.

We test the pattern on three different asset classes: the S&P 500 (SPY), the gold price (GLD), and long-term Treasuries (TLT).

If one daily bar has a lower high and lower low, we enter at the close and exit after 1–10 bars. We use the optimization function in Amibroker.

The result in S&P 500 (SPY) is shown in image-2

You can find more info about this trading strategy here:
https://www.quantifiedstrategies.com/lower-highs-and-lower-lows-pattern/