Bump and run reversal or BARR is a chart pattern indicating the reversal of an existing trend. The pattern was first identified by Thomas Bulkowski and was originally named Bump and Run Formation (BARF). Bump and run reversal is usually a long-term chart pattern which forms as a result of excessive speculation that drives the price too fast to the extremes and then shows a reversal.
There are both bullish and bearish versions of bump and run reversal. Bullish BARR pattern forms when excessive speculation drives the price down forming a large downtrend and an over-sold situation. The price rises sharply when more investors start to buy. Similarly bearish BARR pattern forms when excessive speculation drives the price up too fast, forming an over-bought situation. The price starts to fall when investors start to sell.
Bump and run reversal pattern comprises 3 different phases:
- The lead-in phase is identified by a gradual trend development where the price rises/falls forming a trend. The trendline is moderately steep with average/low trading volume. The lead-in phase takes a month or more to form.
- The bump phase is identified by sharp increase or decrease in price in the direction of the trend. The new trendline deviates too much (45 to 65 degrees) from the original trendline; and there is also a great increase in trading volume.
- The run phase is identified when the price falls/rises to cross the original trendline. The breakout confirms trend reversal.
Before crossing the original trendline, the price bounces back many times to form a double top or double bottom. Traders can enter the trade when the breakout is confirmed.
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