Encyclopedia of Chart Patterns. Thomas N. Bulkowski

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Encyclopedia of Chart Patterns - Thomas N. Bulkowski


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position, performance. I sorted the breakout price into the yearly high–low range and mapped performance on top of it. The table shows that breakouts occurring near the yearly low do better than those near the yearly high. It suggests this chart pattern does well with bottom‐fishing strategies (buy low, sell high). Avoid momentum trading this pattern (buy high, sell higher).

      Table 9.3 Cumulative Failure Rates

Maximum Price Rise or Decline (%) Up Breakout Down Breakout
5 (breakeven) 83 or 15% 129 or 28%
10 71 or 28% 106 or 52%
15 62 or 39% 62 or 65%
20 32 or 45% 44 or 75%
25 40 or 52% 28 or 81%
30 30 or 58% 22 or 86%
35 24 or 62% 19 or 90%
50 56 or 72% 35 or 98%
75 52 or 82% 10 or 100%
Over 75 101 or 100% 0 or 100%
Description Up Breakout Down Breakout
Breakout direction 55% up 45% down
Performance of breakouts occurring near the 12‐month low (L), middle (M), or high (H) L 58%, M 43%, H 40% L –17%, M –14%, H –12%
Throwbacks/pullbacks occurrence 68% 63%
Average time to throwback/pullback peaks 6% in 6 days –6% in 6 days
Average time to throwback/pullback ends 12 days 12 days
Average rise/decline for patterns with throwbacks/pullbacks 39% –13%
Average rise/decline for patterns without throwbacks/pullbacks 50% –16%
Percentage price resumes trend 72% 48%
Performance with breakout day gap 48% –16%
Performance without breakout day gap 42% –14%
Average gap size $0.50 $0.40

      Notice that performance improves if a throwback or pullback does not occur.

      Gaps. Regardless of the breakout direction, a breakout day gap helps performance. That's good news. Why? Because I measured performance from the opening price the day after a gap to the ultimate high or low. Thus, you can buy into the situation after you see a gap and participate in the better‐performance party.

      Table 9.5 shows size‐related statistics.

      Height. For both breakout directions, broadening patterns taller than the median height performed better than did their shorter counterparts.

      To use this finding, measure the height of the pattern from top to bottom and divide by the breakout price. If the result is higher than the median listed in the table for the associated breakout direction, then the pattern is tall.

      Width. Wide patterns performed better than narrow ones. Take the difference between the end date and start date of the pattern and compare it to the median width in the table. Wide patterns will exceed the median.

      Height and width combinations. Tall and wide patterns outperform all other combinations. As a general rule for this pattern, avoid tall and narrow patterns with upward breakouts and avoid short and narrow patterns with downward breakouts.

      Table 9.6 shows volume‐related statistics.

      Volume trend. I used linear regression to determine the volume trend. I found that it trends upward in almost two of every three patterns.

      Rising/Falling volume. Upward breakouts don't show a big performance difference between volume trending upward or downward. Downward breakouts tend to prefer falling volume for better performance.


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Description Up Breakout Down Breakout
Tall pattern performance 45% –17%
Short pattern performance 40% –12%
Median height as a percentage of breakout price 10.6% 11.4%
Narrow pattern performance 40% –13%
Wide pattern performance 46% –16%
Median width 50 days 48 days