Encyclopedia of Chart Patterns. Thomas N. Bulkowski

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Encyclopedia of Chart Patterns - Thomas N. Bulkowski


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Short and narrow performance 40% –11% Short and wide performance 40% –14% Tall and wide performance 48% –17% Tall and narrow performance 39% –16%
Description Up Breakout Down Breakout
Volume trend 63% upward 62% upward
Rising volume trend performance 42% –13%
Falling volume trend performance 43% –16%
Heavy breakout volume performance 44% –15%
Light breakout volume performance 39% –12%
Description Up Breakout Down Breakout
Pattern top 74% 2%
Middle 22% 17%
Pattern bottom 2% 70%

      Table 9.7 shows how often price reaches a stop location. I split the pattern into thirds and found how often price as it moved from the breakout to the ultimate high or low slid into one of the thirds.

      For example, I found that price on the way to the ultimate high (upward breakouts) would touch the top of the chart pattern 74% of the time. So a stop placed there would trigger too often to be viable. If you moved the stop to the bottom of the pattern, price would reach it only 2% of the time, but if it were to trigger, you might see a big loss.

      Thus, stop placement, where you have to balance the loss size with how often it'll be triggered, is something traders need to master.

      Table 9.8 shows the performance over three decades.

      Performance over time. The 2010s, for upward breakouts, showed the worst performance for this chart pattern compared to the other two decades. For downward breakouts, the 2000s were worst. I excluded the two bear markets during that decade, too.

      Failures over time. The most recent decade, the 2010s, showed substantially higher failure rates than the 1990s. I'm not sure why that is.

      Table 9.9 shows busted pattern performance.

      Busted patterns count. A quarter to nearly half of broadening patterns will bust. That means price moved no more than 10% away from the breakout price before reversing and closing beyond the other side of the pattern.

Description Up Breakout Down Breakout
1990s 41% –16%
2000s 50% –13%
2010s 36% –14%
Performance (above), Failures (below)
1990s 10% 20%
2000s 13% 34%
2010s 23% 33%
Description Up Breakout Down Breakout
Busted patterns count 146 or 26% 220 or 48%
Single bust count 77 or 53% 140 or 64%
Double bust count 45 or 31% 10 or 5%
Triple+ bust count 24 or 16% 70 or 32%
Performance for all busted patterns –14% 33%
Single busted performance –23% 49%
Non‐busted performance –14% 43%

      Busted and non‐busted performance. I compared the performance of all busted patterns, single busted patterns, and non‐busted patterns. I wanted to know if busted patterns performed better than non‐busted ones.

      The table shows that single busted patterns performed better than the other two categories. The problem with a single bust is you don't know ahead of time that a pattern will single bust.

      Non‐busted patterns performed better after downward breakouts compared to all busted patterns. All busted patterns means it's the average for the three busted types (single, double, and three or more).

      Table 9.10 lists trading tactics.

      Measure


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