The Yum-Yum continuation pattern is a unique price action setup from the Ultimate Trading Guide by John R. Hill, George Pruitt, and Lundy Hill. This book is an excellent source of price action trading ideas. If you’re looking for inspiration beyond trading indicators, check out this book for its wide variety of price-based trading concepts.
This price pattern is interesting because it integrates several market aspects:
- Swing pivots
- Intra-bar trend
- Bar range
Trading Rules – Yum-Yum Continuation Pattern
This setup starts by focusing on where the market pushes to a new extreme. Then, based on how the market reacts to this action, it evaluates if there’s an opportunity for a trend continuation trade.
The rules below define the setup completely, except for what constitutes an upwards/downwards trend.
You can experiment with any trend-tracking method, but it works best with tools that track the medium-term trend, like the 20-period EMA.
Long Trading Setup
- Existing upwards trend.
- The market pushed above the highest swing high with a wide-range bar*.
- The bar closes near its high and above its open.
- Buy on the break-out of the wide-range bar (within 1 to 3 bars).
Short Trading Setup
- Existing downwards trend.
- The market pushed below the lowest swing low with a wide-range bar*.
- The bar closes near its low and below its open.
- Sell on the break-out of the wide-range bar (within 1 to 3 bars).
*A wide-range bar here is defined as one with a bar range that exceeds the 10-period average bar range.
The default stop-loss level is at the opposite end of the setup bar (i.e., the wide-range bar).
Yum-Yum Continuation Trade Examples
In the three examples below, you’ll see this setup in action.
The first two show a winning and a losing setup, respectively, while the final example shows how to repurpose this pattern as a general price action tactic for market analysis.
Example #1: A Successful Yum-Yum Continuation Trade
This is a 5-minute chart of the Russell 2000 E-mini futures.
The lower panel shows the range of each candlestick with a 10-period simple moving average. If the bar range exceeds the average, it is a wide-range bar that fulfills our trading rule.
- This session started with a bear trend before pausing in a triangle formation.
- A wide-range bar broke the day’s low after breaking out of the triangle. The lower panel highlighted that this bar had a range that was more than two times that of the 10-bar average. Therefore, this wide-range bar served as our setup bar, and we could place a sell-stop order below its low.
- The following bar pushed below it and triggered our sell order. This immediate break-out showed urgency in the selling and confirmed the legitimacy of the bearish break-out.
This session ended with a strong bear trend, and the Yum-Yum continuation pattern got us in midway. It performed solidly as a trend continuation setup here.
Example #2: Yum-Yum Continuation Pattern and Whipsaws
Now, let’s turn our attention to the daily timeframe.
This is a daily chart of Wal-Mart, which shows a failed setup.
- There was an existing uptrend, which was essential for a continuation trading setup.
- The range of the break-out bar exceeded the 10-bar average range and presented a wide-range setup bar. However, its range was not impressive compared with the dozens of bars before it. Contrast this with Example #1, where the expansion in bar range was much more remarkable.
- The next day triggered our buy order, but there was little follow-through. Prices moved sideways for two days before stopping us out with a rapid bear swing.
As our setup bar is a wide-range bar, placing the stop-loss at the opposite end of the setup bar entails higher trade risk. One way to lower the risk is by trailing our stops behind bars that closed in our trade direction.
In this example, an option for managing the position was to trail the stop to just below each bullish candlestick (close > open). Here, active trade management might help us improve our reward-to-risk ratio.
Example #3: Using the pattern as a tool, not a setup
The core idea of this pattern is that we should observe how the market reacts to a push to extend the trend.
Hence, you can put this pattern to use even when you are not actively considering a continuation trade. This is a price action analysis method for tracking market bias.
In this example, we examine each push beyond the trend extreme. Specifically, we look at the first bar to push past the trend extreme.
Ideally, this bar should:
- Close beyond the trend extreme; and
- Be a wide-range bar.
- The swing pivots are drawn according to the method taught in my course.
- The horizontal dashed lines were the trend extremes at some point.
The chart below is from a 5-minute chart of the ES futures market.
- These two break-out bars were solid; both were wide-range bars that closed below the trend low, confirming a bearish market bias. (The arrows point precisely at the break-out bars.)
- These break-out bears were not ideal as they failed to close below the trend low. Hence, they hinted at a possible slowing down or reversal of the bearish trend.
- These were three bullish break-out bars. However, none of them fulfilled our ideal criteria. The first two failed to close above the trend high level; the last one was not a wide-range bar. As a result, the bulls failed to make their presence felt.
- This break-out bar was the first solid bearish break-out bar since the first hour of the session. It turned out to be a significant point. Look at how the market resumed its bearish trend from this point.
Like most price patterns, this one might not be profitable when traded mechanically. However, as discussed in this example, it introduces concepts that help analyze market biases.
Two Methods For Trading Trend Continuation
To understand this method, it’s helpful to talk about the two styles of continuation setups.
The first is to pinpoint an entry during the pullback/throwback. (An example is the 9/30 setup.)
- Typically, this approach gives us an entry with a better reward-to-risk ratio.
- However, it has lower odds of success because we are trying to pick the top/bottom of a minor trend ( if you think of the pullback as a mini-trend).
The second method is to wait for a break-out of the last extreme of the trend.
- As this approach waits for confirmation from the break-out, trend continuation is more likely. So, essentially, we enter only when the trend has resumed.
- However, the cost of this confirmation is a lower reward-to-risk ratio. This is an example of the inevitable trade-off between trading methods.
How does Yum-Yum work?
The Yum-Yum continuation pattern uses the second method.
It attempts to improve a basic break-out trade in two ways:
#1: It uses bar range expansion to confirm the break-out.
Bar range tends to expand along the path of least resistance and contracts when moving against it. So this behavior is an effective filter for false break-outs.
Another standard filter for break-outs is volume analysis, which John Bollinger recommended for the Bollinger Squeeze trading setup.
#2: It implements a time limit for follow-through of the break-out bar.
Recall that the entry stop order must be triggered within 1 to 3 bars. The idea is that valid break-outs should present a sense of urgency, and follow-through should come quickly.
This rule ensures that if there’s no swift confirmation, we should abandon the trading setup.
Review – Yum-Yum Continuation Pattern Trading Setup
The Yum-Yum pattern is a trend continuation trading setup. Please do not overlook this.
Always ensure that the market has a clear trend before considering this setup.
Finally, this setup requires you to buy high and sell low at entry. And some traders are uncomfortable with this style of trading.
Although this is necessary for trend followers, you should only use trading strategies that make sense to you. So check out other retracement strategies if you want to experiment with more approaches.
The article was first published on 12 December 2013 and updated on 22 September 2022.