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

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

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 post, 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".

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.

We have backtested anther strategy where we go long at the close of the second day when both the low and high have made lower readings than the previous day for two consecutive days. Check out the improved result here >>

https://www.quantifiedstrategies.com/lower-highs-and-lower-lows-pattern/