Toby Crabel’s Bull Hook Trading Strategy Tested | Ali Casey

As an algo trader, I value patterns for their ease of programming and testing, which allows for the development of robust trading strategies. Today, we'll explore bull and bear hooks, patterns that can vary in details but generally serve to catch traders on the wrong side. Toby Crabel, Joe Ross, and Thomas Bulkowski, among others, have variations of these patterns.

Toby Crabel's original definition of the Bull Hook pattern:

» A Bull Hook occurs on Day 2. A Bull Hook is defined as a day with a higher open than the 

previous day's high followed by a lower close with a narrowing daily range. The next day (Day 1), 

a trade is taken on the initial move off the open, preferably to the upside. «

 

Toby Crabel's original definition of the Bear Hook pattern:

  » Bear Hook is a day in which the open is below the previous day's low and the close 

is above the previous day's close with a narrow range relative to the previous day. As implied by 

the name there is a tendency for the price action following a Bear Hook to move to the downside. «

The Bull Hook pattern has two main forms:

Bull Hook 1: In a downtrend, the pattern is identified when today's bar is an up bar with a smaller range than the previous day and is an inside day (high lower, low higher than the previous bar). We buy with a stop order above the high of this bar.
Bull Hook 2: Here, today's bar is a down bar with a smaller range than the previous day, opening above the previous high and closing below the previous close. This pattern involves just two bars.

For testing, I used TradeStation with S&P 500 e-mini futures data. The backtest for Bull Hook 1 was disappointing, showing a loss with only 15 trades, which seemed unusual given its pullback nature. A deeper analysis suggested that the specific conditions, particularly the inside day and green bar requirements, were limiting trades. By removing some conditions, like the inside day and green bar, and focusing on a simpler pullback strategy, the results improved significantly with about 200 trades and positive performance metrics. For Bull Hook 2, the test also yielded fewer trades than expected, which might be attributed to its breakout nature, not performing well on the S&P 500. Simplifying the conditions here also improved the results somewhat, though it remained less effective. The Bear Hook pattern, when flipped for long trades, performed better but still had a low trade count. Removing some conditions and simplifying it increased the trade count and improved performance. While both Bull Hook patterns had potential, their effectiveness was highly dependent on specific conditions and the number of trades generated. Simplifying the patterns often led to better results.

Reference:
Ali Casey (July 28, 2024) - The Secrets of Toby Crabel’s Bull Hook Trading Strategy Exposed. (video)
 Toby Crabel (1990) - Day Trading With Short Term Price Patterns And Opening Range Breakout.
MyPivots.com (2024) - Scanner for Toby Crabel Price Patterns in the E-mini S&P 500 Futures. 

 

See also:

Thomas Bulkowski (2013) - Hook Reversal, Uptrend.

 Thomas Bulkowski (2013) - Hook Reversal, Downtrend.

Joe Ross (1991) - Trading the Ross Hook.

Slava Loza (2021) - How to Trade the 1-2-3 Reversal and the Ross Hook Patterns.

Thomas Bulkowski on Hook Reversals in an Uptrend and in a Downtrend.

Re-Accumulation & Re-Distribution Range Patterns | Richard D. Wyckoff

 S&P 500 E-mini Futures (daily bars - May 23-August 30, 2024) — 40 Week Hurst Cycle Trough on August 5th.

Martin Armstrong's DJIA Aggregate topping Week August 26-30 and Panic Cycle Week September 9 - 13.  

US Stock Market Seasonality negative into late October (Jeff Hirsch & Martin Biber).

S&P 500 E-mini Futures (4 hour bars - August 15-30, 2024) — Distribution or Re-Accumulation:

Distribution Schematic #3 in Phase C or Re-Accumulation with Spring Action in Phase D ?

 

   The 4 Phases of Richard D. Wyckoff's Market Cycle:

(1.) Accumulation, (2.) Mark Up, (3.) Distribution, (4.) Mark Down.

The Re-Accumulation process is exactly identical to the Accumulation process. The only difference between the two is the way the structure begins to develop. While the Accumulation range begins by stopping a bearish movement, the Re-Accumulation range begins after the stop of an upward movement. To put it another way: A Re-Accumulation occurs during a longer-term up trend, which will continue in the future. The main street is finally on the right side as well. Inside a Wyckoff Re-Accumulation schematic, buyers are closing parts of their long positions and sellers are joining the market. With the incoming selling positions, market makers can fill new long positions again.

 4 Types of Re-Accumulation Ranges a.k.a. Continuation Patterns a.k.a. Trend Continuation:

(1.) Re-Accumulation after a Decline.
(2.) Re-Accumulation with Spring Action.
(3.) Re-Accumulation after a Shakeout.
(4.) Re-Accumulation with an Uprising Structure.

The 4 Re-Distribution types are simply the opposite (lower 4 schematics):

(1.) Re-Distribution after a Rally.
(2.) Re-Distribution with Spring Action.
(3.) Re-Distribution after a Shakeout.
(4.) Re-Distribution with a Declining Structure.

 Examples of different types of Re-Accumulation Patterns in the Apple (AAPL) Weekly Chart.

 

The events and phases are still the same (see the Accumulation and Distributions Schematics - the last 4 charts). Only the beginning of the Re-Accumulation cycle is different and equals the start of a distribution cycle. Take a look at the Wyckoff distribution schematics below for the occurring events. The main events that differ from an accumulation or distribution cycle are the occurrences of the Creek. The Creek is a small trend over time and can equal a smaller consolidation. The Creek builds liquidity on both sides of the market and misleads market participants. The Jump Across the Creek (JAC) is the event that causes the SoS. The Jump Across the Creek does take out previous resistance lines with a strong up move. The Jump Across the Creek can also occur inside the trading range of the accumulation. The Creek can be the horizontal resistance defined by Phases A and B or an internal trend line that formed inside Phase B.

• After the spring and test events, there is a bullish price move with momentum. This is called the Jump Across the Creek. Price continues with a bullish Phase E.
• Usually, any shakeout and/or decline action before Re-Accumulation will have a local smaller distribution pattern (cause and effect).
• The Initial Shakeout/Decline is less pronounced during Re-Accumulation than before Accumulation.
• Volume: Re-Accumulation usually has less supply than Accumulation.
• The maximum swing of trading range (highest to lowest point): Re-Accumulation trading range is usually tighter compared with an Accumulation trading range.

 (1.) Re-Accumulation after a Decline

 

• Weakest among the Re-Accumulation types.
• Decline usually starts from a small local distribution pattern.
• It can have different variations of the trading range (see the structure of the next 3 formations).

(2.) Re-Accumulation with Spring Action

 

• Flat or sloping down formation.
• It can potentially have a few lower lows with a spring being the lowest point of the trading range.
• Leading stocks can exhibit short-term weakness after strength in this formation.

(3.) Re-Accumulation after a Shakeout

 

• Absorption of supply happens in the trading range without violation of support.
• Usually and depending on a position of the market, this pattern exhibits strength.

(4.) Re-Accumulation with an Uprising Structure 

 

• Re-Accumulation with an Uprise is the strongest Re-Accumulation type.
• This structure will exhibit higher highs / higher lows.
• Sometimes can be confused with a topping trading range (Distribution).

 

 

 Accumulation Schematic #1: Phases A and B.

 Accumulation Schematic #1: Phases C, D and E.

 

 Distribution Schematic #3: Phases A, B, C, D and E = the Inversion of the  Accumulation Schematic #1

 

The Re-Distribution occurs inside a markdown cycle and stops a down-trend for a longer period. After bigger price moves even Main Street joins the trend. Now it is time for the market makers to bring the price into a consolidation phase to scare sellers and bring in new buyers. That ensures new liquidity for the institution’s to place new short orders. The start of a Wyckoff Re-Distribution schematic is the same as an Accumulation cycle. A Creek inside the trading range creates liquidity on both sides of the market, which gets taken by a UTAD. Many people will see this as a break-out to join bullish price action, but don’t get fooled. With a Jump across the Creek, the price is not only returning into the trading range but going to continue the downtrend from before.

 

 

  Distribution Schematic #2: Phases A and B.

 

 Distribution Schematic #2: Phases C, D and E.

 

Many believe that simply labeling the events is sufficient for detecting Wyckoff cycles. Don't forget that a supposed Distribution can become a Re-Accumulation or an Accumulation a Re-Distribution. Therefore, it is essential to presuppose a fundamental market analysis and confirm a Wyckoff cycle with COT data, Seasonality, or other longer-term confirmations. Don't make the mistake of looking for Accumulations and Distributions in lower time frames. It is easy to draw a supposed accumulation on a 5-minute chart, but a real Accumulation takes place in higher time frames. Since a Wyckoff cycle takes time to unfold, wait for the events to occur and be fully validated. Otherwise, one quickly get s distracted by the noise within the actual moves and makes bad trading decisions in the worst case. 

 

Bruce Fraser (January 30, 2020) - Distribution or Re-Accumulation? 

Reference:

Richard D. Wyckoff (December 21, 2022) - Accumulation & Distribution Schematics.

Jim Forte (1994) - Anatomy of a Trading Range.
Hank Pruden & Max Lichtenstein (2006) - Wyckoff Schematics - Visual Templates for Market Timing Decisions.

WyckoffAnalytics.com (2022) - Richard D. Wyckoff - His Method and Story.

Matt LeTrader (2022) - Composite Man: A Journey through the Trading Range. 

Roman Bogomazov (2022) - Wyckoff Method Trading and Education.

Swing Points as Trend Change Indication | Larry Williams

A trend change from up to down occurs when a short-term high is exceeded on the upside, a short-term trend change from down to up is identified by price going below the most recent short-term low. Figure 8.1 depicts such trend changes in a classic manner, study it well because reality comes next! Here are a couple of pointers on this technique. Although the penetration of one of these short-term highs, in a declining market, indicates a trend reversal to the upside, some penetrations are better than others.

 Figure 8.1 — Classic patterns of trend change.

» There are only two ways a short-term high or low is broken. «

 Figure 8.2 — Breaking a short-term high or low.

There are only two ways a short-term high or low is broken. In an up trending market, the low that is violated or fallen below will be either a low prior to making a new rally high, as shown at (A) in Figure 8.2, or a low that occurs after decline of a high that then rallies making a lower short-term high; it then declines below the low prior to the rally that failed to make a new high, as shown at (B). The better indication of a real trend change is the violation of the low shown at (A). By the same token, a trend reversal to the upside will occur in one of the two following patterns: In (A), the rally peak prior to a new low is violated to the upside, or in (B), the market makes a higher low, then rallies above the short-term high between those two lows. In this case, again, the (A) pattern is the better indication of a real trend reversal.

Figure 8.3 — T-bonds (15-minute bars)

With that in mind, look at Figure 8.3, which shows a 15-minute bar chart of the September Bonds in 1989. The major trend moves were adequately captured by this technique. [...] You can use this technique two ways. Some traders may simply buy long and sell short on these changes in trend. That's a basic simplistic approach.

Quoted from:
Larry Williams (2000) - Day Trade Futures Online.

ICT NY Midnight Open and the Previous Day's High and Low | Darya Filipenka

This is how I incorporate the New York Midnight Open (NMO) level when I prepare my premarket plan. This also helps me to predict possible trend day. Previous highs and lows are important in trading as they can indicate potential market reversals or continuation of a trend. When the market has a predisposed bias or trend, you want to focus on the previous day's high or low. If the market reaches the previous day's high and you're bullish, you want to see if it creates an optimal trade entry. Many times, this formation forms throughout the week in various currencies and assets. There are instances where the market raids the previous day's highs for buy stops and previous day's lows for sell stops. Not every previous day's high or low is the same in terms of opportunity, but there's a criteria to look for when seeking liquidity resting above or below these levels. Understanding the conditions that lead to a raid on buy stops above the previous day's high or sell stops below the previous day's low can help you identify potential market reversals.

 

PDH = Previous Day's High

PDL = Previous Day's Low 

PDA = Premium and Discount Arrays as a guide to determine where to buy and sell

 

Quoted from:

Darya Filipenka (April 3, 2024) @ Twitter/X

 

 

Premium and Discount Arrays

Inside Days in the S&P 500 │ Toby Crabel

Toby Crabel (1990) - Computer studies suggest that Inside Days (ID) provide very reliable entries in the S+P market. The data used in the studies is daily open, high, low and close prices from 1982 to 1987. All of the following patterns are defined for a computer but can be seen easily on a daily bar chart.

• Pattern (1) is simply an inside day followed by a sale (s) on a lower open or buy (b) on a higher open. Entry is on the open with an exit on the same day's close with no stop. This procedure produced sixty-eight percent winning trades with profits of $18,000 after an $18 commission. This is a reasonably high percentage and suggests a strong bias in the direction of the open after any ID.

• Pattern (2a) is defined as an ID with a higher close than the previous day followed by a higher open. A buy is taken on the open and exited on the close. The same is done on the sales (Pattern (2b)) if there was an ID with a lower close followed by a lower open. Again, stops were not used. There were forty-four trades as such with seventy-four percent of them profitable. Net profit was $14,914. The percentage has improved and profits are better per trade than Pattern (1). This supports the premise that the closing effects the next day's action and potential breakout. Further tests uncover some variations to above results. Although the opening direction after an inside day appears to be a valid indicator of upcoming direction, there are same specific patterns that show very high percentage profitability without the use of the previous day's closing direction. Specifically, two patterns; one a sale (Pattern (3)), one a buy (Pattern (4)).

• Pattern (3): The day of entry is called Day 1. The day of immediately preceding the entry is Day 2 and each preceding day - 3, 4, 5, etc. On Day 1 an open lower than Day 2's mid-range and lower than Day 2's close is necessary. Day 2 must be inside of Day 3. Day 3 must have a higher low than Day 4. A sale is made on the open of Day 1 with exit on the close of Day 1. Profits were eighty percent with winning trades five times the size of losing trades. The only shortcoming is that only ten trades could be found from 1982-1987.
  

• Pattern (4) is similar to Pattern (3) with opposite parameters. The only exception is the open on Day 1 need only to be higher, not above mid-range. So to review Pattern (4), Day 1 a higher open than Day 2. Day 2 inside Day 3. Day 3 lower high than Day 4. Results were as follows: Ninety-one percent profits; 860 to 820 average winner to average loser. No stops were used.  Only eleven patterns to the upside were found.

The market action implied in each pattern is a short-term trend with a loss of momentum on the Inside Day.  The open on Day 1 is in the opposite direction of the trend and is an indication of a shift in sentiment. This shift in sentiment causes those who still have existing positions against the opening direction to liquidate longs or cover shorts. Participants covering their positions is more than enough to tip off a directional move.

A slightly different perspective on the same type of pattern is to look for a retracement to the previous day's close after the opening and take a position at that point in the direction of the open. I tested four patterns to demonstrate this principle.

• Pattern (5) shows an Inside Day with a lower close on Day 2 than Day 3.  Day 1's open is above Day 2's close. The chances are sixty-two percent that the market will close above Day 2's close on Day 1.
• Pattern (6) is an Inside Day on Day 2 with a higher close than Day 3. Day 1's open is above Day 2's close. The chances are seventy-nine percent that the market will close above Day 2's close on Day 1.
• Pattern (7) shows an Inside Day on Day 2 with a lower close than Day 3's close. Day 1's open is below Day 2's close. The chances are fifty-nine percent that the close on Day 1 will be lower than Day 2's close.
• Pattern (8) shows an Inside Day on Day 2 with a higher close than Day 3's close. Day 1's open is below Day 2's close. There is a sixty-seven percent chance that the market will close below Day 2's close on Day 1.

How can you use this information? It suggests a strong bias in the direction of the open especially after a higher open. The prolonged bull market obviously had an impact on these results but in general, a counter move back to Day 2's close after the opening direction is known, should be observed for a loss of momentum and possible entry in the direction of the open.
 
Another totally different test in the S+P has same interesting implications and could be tied in with the previous patterns. On any day that the market has moved two hundred points above the open intra-day, it has closed above the open ninety percent, of the time. Also, on any day that the market has moved two hundred points below the open it has closed below the open eighty-eight percent of the time. This was during the period from 1982-1988.

An application of these results is as follows: Enter in the direction of the initial trend on any low momentum move back to the open and exit on the close of the session. This can be done after the initial trend is established with a two hundred point move in one direction off the open. The main qualification is price action on the pullback. A high momentum move back through the open leaves the initial two hundred point move in question. This can also be applied after an Inside Day very effectively.

I think it is necessary to shed light on how extraordinary the results for Inside Days are: A test on a sale of a higher open or buy of a lower open with no other information to work with provides a winning trade fifty-six percent of the time when exiting on the close the same day of entry. This suggests a natural tendency for the market to reverse the opening direction by the time of the close.

This natural tendency is reversed after an ID. Why? What is it about an ID that produces follow through after the open? An ID is narrower than the previous day. Any narrowing day shows loss of momentum and when within a previous day's range it forms a congestion area. A congestion is directionless trade with the market searching for new information. A temporary state of balance or equilibrium exists.

There is a tendency for the market to trend after a congestion. If an Inside Day is a valid congestion, it will produce an imminent trend day. One can assume from the above tests that there is a tendency to trend after these patterns (ID). These tests support the premise that Inside Days are valid congestion areas. It appears that market participants act on the first piece of information indicating trend after the Inside Day - the open. Also, the direction of the close on the ID will provide further clues on the direction of the breakout when added to the information of opening direction. The increase in percentage profit and relative profits when these variables are added supports this conclusion.

The ID pattern acts as a continuation 62% of the time. A breakout occurs when price closes either above the top of the pattern
or below the bottom of it. Since inside days act as a continuation pattern, expect the breakout to be in the same direction as
the inbound price trend. Wait for price to either close above the top or below the bottom of the pattern before taking a position.
The ID can form midway in a price trend, just like bull flags, wedges and pennants.

Why do these indications work so well in the S+P? The S+P generally is an urgent market. The distinguishing characteristic of this market is its tendency to trend throughout the session. This market is notorious for big, fast moves intra-day. Peter Steidlmayer (Markets and Market Logic) calls it a One-Time Frame market. One may reason that in a One-Time Frame market the inside day is a more reliable indication of upcoming trend than in a Two-Time Frame market. The market principle that is in force is contraction/expansion. The Inside Day is contraction, and in a One-Time Frame market 1-Day contraction is all that is necessary to tip off a directional move.

In summary, the above tests suggest that an Inside Day is a valid congestion area and it follows that all breakout rules for congestion areas should be implemented after an Inside Day forms. The resulting breakout is expansion.

Three-Bar Inside Bar Pattern by Johnan Prathap - HERE & HERE

[...] The Principle of Contraction / Expansion is defined as the market phenomenon of change from a period of rest to a period of movement back to a period of rest. This interaction between the phases of motion and rest are constantly taking place, with one phase directly responsible for the others' existence. A Trend Day is defined as a day when the first hour's trade comprises less than 10% of the day's range or the market has no dominant area of trade throughout the session. Trend days are characterized by an opening near one extreme and a close on the opposite extreme of the daily range. Trend days fall into the category of expansions. Congestion is a series of trading days with no visible progress in either direction. Usually associated with narrow range days or non-trend days. Contraction is a market behavior represented by a congestion or dormant period either short-term (ID) or long-term narrow range (8 Bar NR) and usually reaching its narrowest phase at the end of the period.

References:

Toby Crabel (1990) - Day Trading With Short Term Price Patterns and Opening Range Breakout
Contraction > Breakout > Expansion | Toby Crabel's Price Patterns 

Perry J. Kaufman (2019) - Trading Systems and Methods

Alex's Options - Trading Inside Bars