(1 0-20)
18
Double Bottom
3
R
T68
40
20-30
4
Double Top
17
R
P69
(20)
(10-15)
21
Rectangle Bottom,down breakout
4
C
P 70
(19)
(10-15)
8
Rectangle Bottom upbreakout
0
R
T61
46
20
32
Rectangle Top, downbreakout
0
R
P55
(20)
(20)
31
Rectangle Top, upbreakout
2
C
T53
52
20-30
1
Rounding Bottom
5
C
NS
54
20
6
Rounding Top
6
C
NS
41
20-40
7
Scallops, Ascending
25
C
NS
33
20-30
25
9
Scallops, Descending
3
C
NS
(24)
(20)
1
10
Shark-32, downbreakout
44
RorC
P58
(21)
(10)
29
Shark-32, up breakout
41
C
T64
32
10-15
31
20
3
Flag, downtrend
12
C
P20
(17)
(15)
16
Flag, uptrend
13
C
T10
19
20*
26
Flag, High and Tight
17
C
T47
63
20-30
16
Cap
NS
C
NS
Varies
Varies
35
Hanging Man, downbreakout
22
C
NS
(16)
(5-10)
27
Hanging Man, upbreakoutHead-and-ShouldersBottomHead-and-ShouldersBottom, ComplexHead-and-ShouldersTop, Complex
67
56
RRR
NST52T47
4038
37
33
1020-3020-30
8
R
P64
(27)
(20)
7
7
R
P45
(23)
(15)
11
Head-and-ShouldersTopHorn Bottom
11
C
NS
37
20-30
17
Horn Top
16
RorC
NS
(21)
(10)
23
Inside Day, downbreakout
51
R
NS
(10)
(0-5)
32
Inside Day, up breakout
56
C
NS
13
0-5
34
Island Reversal, bottom
17
R
T70
34
20
22
Island Reversal, top
13
R
P65
(21)
(10)
20
(continued)
Triangle, Ascending
2
C
T58
44
Triangle, Descending
4
C
P64
(19)
(1 0-20)
6
Triangle, SymmetricalBottom, down breakout
2
C
P57
(19)
(10)
2
Triangle, SymmetricalBottom, up breakout
3
R
T43
41
20
5
Triangle, SymmetricalTop, down breakout
6
R
P59
(20)
(15)
10
Triangle, SymmetricalTop, up breakout
5
C
T58
37
20
11(continued)
658
Statistics Summary
Statistics Summary
Summary of Statistics for All Chart Patterns (continued)FailureRateFormation
ReversalorConsolidation
ThrowbackPullback
R
T70
38
AverageRise orDecline
659
Top Ten Best Performing Bearish Formations, Sorted by Score
LikelyRise orDecine(%)
RankbyScore
20
8
Triple Bottom
4
Triple Top
15
R
P84
(21)
(10)
22
Wedge, Falling
2
C
T47
43
20-30
2
Wedge, Rising
6
R
P53
(19)
(15)
12
Weekly Reversal,
downside
37
R
NS
(18)
(10)
28
Weekly Reversal, upside
23
R
NS
44
20
23
Bullish pattern average
38
20
Bearish pattern average
(21)
(14)
In the following tables, I do not include the measured move up and measuredmove down formations because the average gain or loss is unrealistic. I calculated the returns assuming an investor notices the formation at the start of thechart pattern when a more realistic interpretation gauges results from the corrective phase (or the length of the second leg). In short, the average gain for ameasured move up is probably about 37%, instead of 68%, and for the measured move down, expect an average loss of 20% instead of 36%.
Failures(%)
AverageDecline(%)
LikelyDecline(%)
Score
1 Scallops, Descending
3
24
20
1.60
2 Triangles, SymmetricalBottoms, down breakout
2
19
10
0.95
3 Broadening Tops,down breakout
4
23
15
0.86
4 Broadening Formations,Right-angled andDescending
0.791
Formation
3
19
13
5 Broadening Bottoms,down breakout
6
27
18
0.788
6 Triangles, Descending
4
19
15
0.71
7 Head-and-Shoulders Tops,Complex
8
27
20
0.68
8 Rectangle Bottoms, downbreakout
4
19
13
0.59
9 Triangles, Symmetrical Tops,down breakout
6
20
15
0.50
10 Head-and-Shoulders Top
7
23
15
0.49
_
Note: The score column results from multiplying the average loss times the likely loss anddividing by the failure rate.
Top Ten Bullish Formations with Lowest Failure RatesFailures(%)
AverageRise(%)
LikelyRise(%)
Score
Top Ten Best Performing Bullish Formations, Sorted by ScoreFailures(%)
AverageRise(%)
LikelyRise(%)
Score
1 Rectangle Bottoms,up breakout
0
46
20
0.09
1 Rectangle Tops, up breakout
2
52
25
6.50
2 Rectangle Tops, up breakout
2
52
25
6.50
2 Wedges, Falling
2
43
25
5.38
3 Triangles, Ascending
2
44
20
5.38
3 Triangles, Ascending
2
44
20
4.40
4 Wedges, Falling
2
43
25
4.40
4 Double Bottoms
3
40
25
3.33
5 Triangles, Symmetrical Bottoms, up breakout
3
41
20
2.73
5 Broadening Bottoms,up breakout
2
25
10
1.25
6 Rounding Bottoms
5
54
20
2.16
7 Rounding Tops
6
41
30
2.05
6 Triangles, Symmetrical Bottoms,up breakout
3
41
20
3.33
3
40
25
2.73
Formation
Formation
8 Triple Bottoms
4
38
20
1.90
7 Double Bottoms
9 Head-and-Shoulders Bottoms
5
38
25
1.90
8 Triple Bottoms
4
38
20
1.48
1.54
9 Broadening Tops, up breakout
4
34
12.50
1.06
1 0 Triangles, Symmetrical Tops,up breakout
5
37
20
1.90
1 0 Head-and-Shoulder Bottoms, Complex
6
37
25
Note: The score column results from multiplying the average gain times the likely gain anddividing by the failure rate.
660
Statistics Summary
Statistics Summary
Top Ten Bearish Formations with Lowest Failure Rates
Formation1 Rectangle Tops, down breakout
661
Top Ten Bearish Formations with Highest Average Decline
Failures(%)
AverageDecline(%)
LikelyDecline(%)
Score
Formation
0
20
20
0.04
2 Triangles, Symmetrical Bottoms,down breakout
2
19
10
0.95
3 Scallops, Descending
3
24
20
1.60
Average
Likely
Failures(%)
Decline
Decline(%)
Score
1 Head-and-Shoulders Tops, Complex
8
27
20
0.68
2 Broadening Bottoms, down breakout
6
27
17.5
0.79
3 Broadening Wedges, Descending,down breakout
41
24
20
0.12
4 Bump-and-Run Reversal Tops
19
24
17.5
0.22
(%)
4 Broadening Formation, Right-Angledand Descending
3
19
12.5
0.79
5 Scallops, Descending
3
24
20
1.60
5 Broadening Tops, down breakout
4
23
15
0.86
6 Head-and-ShoulderTops
7
23
15
0.49
6 Triangles, Descending
4
19
15
0.71
7 Broadening Tops, down breakout
4
23
15
0.86
7 Rectangle Bottoms, down breakout
4
19
12.5
0.59
8 Shark-32, down breakout
44
21
10
0.05
9 Horn Tops
16
21
10
0.13
1 0 Triple Tops
15
21
10
0.14
8 Triangles, Symmetrical Tops,down breakout
6
20
15
0.50
9 Wedges, Rising
6
19
15
0.48
1 0 Broadening Wedges, Ascending
6
20
10
0.33
Top Ten Bullish Formations with Highest Average Rise
Top Ten Bullish Formations with Highest Most Likely Rise
Formation
(%)
AverageRise(%)
1 Flags, High and Tight
17
63
25
0.93
1 Rounding Tops
2 Rounding Bottoms
5
54
20
2.16
2 Broadening Formations,Right-Angled and Descending
Failures
LikelyRise(%)
Score
3 Rectangle Tops, up breakout
2
52
25
6.50
4 Pipe Bottoms
12
47
20
0.78
5 Broadening Wedges, Descending,up breakout
37
46
20
0.25
Formation
Failures(%)
AverageRise(%)
LikelyRise(%)
Score
6
41
30
2.05
19
27
25
0.36
3 Scallops, Ascending4 Head-and-Shoulders Bottoms,Complex
25
33
25
0.33
6
37
25
1.54
37
25
0.841.90
6 Rectangle Bottoms, up breakout
0
46
20
0.09
5 Horn Bottoms
11
7 Weekly Reversals, Upside
23
44
20
0.38
6 Head-and-Shoulders Bottoms
5
38
25
4.40
7 Double Bottoms
3
40
25
3.33
2
43
25
5.38
8 Triangles, Ascending
2
44
20
9 Wedges, Falling
2
43
25
5.38
8 Wedges, Falling
1 0 Triangles, Symmetrical Bottoms,up breakout
9 Rectangle Tops, up breakout
2
52
25
6.50
3
41
20
2.73
10 Flags, High and Tight
17
63
25
0.93
662
Statistics Summary
Top Ten Bearish Formations with Highest Most Likely DeclineFailures
AverageDecline
Formation
LikelyDecline(%)
Score0.13
1 Pennant, trend down
34
17
25*
2 Scallops, Descending
3
24
20
1.60
3 Head-and-Shoulders, Tops, Complex
8
27
20
0.68
4 Diamond Tops
25
21
20
0.17
5 Broadening Wedges, Descending,down breakout
41
24
20
0.12
6 Rectangle Tops, down breakout
0
20
20
0.04
7 Broadening Bottoms, down breakout
6
27
17.5
0.79
8 Bump-and-Run Reversal Tops9 Broadening Tops, down breakout
194
2423
17.515
0.220.86
10 Triangles, Descending
4
19
15
0.71
Index of Chart Patterns
Broadening Bottoms, page 12
Broadening Wedges, Ascending,page 72
Broadening Formations,Right-Angled and Ascending,page 27
Broadening Wedges, Descending,page 87
Broadening Formations,Right-Angled and Descending,page 40
Bump-and-Run Reversal Bottoms,page 100
Bump-and-Run Reversal Tops,Broadening Tops, page 55
page 119
663
664
Index of Chart Patterns
Cup with Handle, page 135
Flags, page 213
Dead-Cat Bounce, page 153
Flags, High and Tight, page 227
Head-and-Shoulders, Tops,page 290
Head-and-Shoulders Tops,Complex, page 305
Diamond Bottoms, page 165
Gaps, page 240Horn Bottoms, page 320
Diamond Tops, page 165
Hanging Man, page 252Horn Tops, page 332
Double Bottoms, page 182
Head-and-Shoulders Bottoms,page 262Inside Days, page 343
Double Tops, page 197
Head-and-Shoulders Bottoms,Complex, page 276
Island Reversals, Bottoms, page 356
666
Index of Chart Patterns
Index of Chart Patterns
Pennants, page 213I
Hounding Tops, page 477
Pipe Bottoms, page 417
Scallops, Ascending, page 487
Triangles, Symmetrical Bottoms,page 545
667
Wedges, Falling, page 603
Wedges, Rising, page 617Triangles, Symmetrical Tops,page 560
Pipe Tops, page 429
Weekly Reversals, Downside,page 631
Scallops, Descending, page 487Triple Bottoms, page 576
Rectangle Bottoms, page 439
Shark-32, page 501
Weekly Reversals, Upside, page 642Triple Tops, page 590
Rectangle Tops, page 453
Triangles, Ascending, page 511
Rounding Bottoms, page 466
Triangles, Descending, page 529
Index
Numbers in bold type refer to chapters; numbers in italics refer to illustrations.Alternating touches, 22Ascending broadening wedge. SeeBroadening wedge, ascendingAscending triangle. See Triangle, ascendingAverages, 5gain/rise, 655loss/decline, 655
Broadening wedge, 16, 59, 593ascending, 60, 72, 88, 94, 312descending, 54, 60, 87, 275, 596, 640, 641Bump-and-run reversal (BARR)bottoms, 100, 103, 106, 108, 109, 111,114,117dual, 123, 124inverted, 101
BARR. See Bump-and-run reversalBounce phase, 156, 159, 160Bowl shape, 278, 468Breakout, 35, 184,504,601confirmation, 33, 34, 114horizontal, 41, 51, 95point, 16, 207, 278premature, 31, 95, 448, 461, 515, 536, 554,565,566,610,625,655Broadening bottoms, 12, 56, 57, 59, 402, 549Broadening formations, 78, 405right-angled, 16, 78right-angled and ascending, 27, 150right-angled and descending, 28, 40Broadening tops, 14, 38, 47, 55, 167, 273,
274, 316, 318, 319, 403, 549, 580, 593,640, 641orthodox, 57, 60, 61right-angled and ascending, 57, 59, ISO,
152,578right-angled and descending, 57, 59, 592,593,594
multiple bumps, 108
tops, 3, 100, 103, 119, 136,137,195, 196,386Bump height, 104, 105, 107, 123, 130Bump phase, 103, 104, 107, 108, 113, 121,122, 196,386Buy and hold investors, 10
Channel, 74, 702, 114, 213, 371, 383, 384Climax day, 394Closing the gap, 159, 241
Coils, 353, 545, 560Complex head-and-shoulders formations.See Head-and-shoulders, complexbottoms; Head-and shoulders, complex
topsConfirmation level, 198Confirmation line, 187, 579Confirmation point, 58, 114, 173, 182, 184,
185, 186, 187, 189, 191,194,195, 198,295, 586, 598Consolidation area, 231, 432
669
670
Index
Index
Corrective phase, 85, 88, 370, 383, 451, 465,596, 616, 646Cup handle, 136, 151Cup with handle, 101, 102, 135,466Curve fit, 424Cycle, 331
Flag, 59,71,213,237Flag, high, tight, 136,137, 227Flat base problem, 374Flat bottom formation, 449Flat top formation, 463, 465Frequency distribution, 5, 6, 655Frying pan formation, 101, 103
Day trade, 196,474,476
Fundamental analysis, 3, 9
Day traders, 10
Dead-cat bounce, 3, 17, I S , 153, 250, 251,316, 319, 407, 408, 474, 564, 565Descending triangle. See Triangle,descendingDescending broadening wedge. SeeBroadening wedge, descending
common, 240
classic definition, 186
Double tops, 3, 5, 57, 58, 69, 71, 84, 85, 110,123, 131, 132, 134, 142, 143, 154, 197,239, 307, 324, 332, 333, 386, 388, 436,550, 551,578Dow Jones industrials, 3Downhill run, 121, 122Downside breakout, 311Dual bump, 108, 123
First leg, 370, 3835% failure, 18, 35, 47, 62, 81, 93, 124,
188, 191,203,204,231,258,268,281,314,324,335,346,360,398,407, 421, 443,458,470,481, 491,502, 518, 550, 566, 581, 595, 607,621,646,654Five-point reversal, 14, 57, 59, 60, 61, 67inverted, 67
measuring, 243
pattern, 243runaway, 243
Gunning the stops, 396
Half-mast formation, 71,218, 222, 223, 237,393,509,510,558Handle, 469Head, 169, 293Head-and-shoulders formations
Emotional analysis, 9Event
Falling wedge. See Wedge, fallingFibonacciratio, 389retracement, 641sequence, 389
continuation, 240ex-dividend, 241exhaustion, 240, 358, 360, 393, 464, 465,513
Hanging man, 252, 354, 355
Dual head, 305
Failure rate, 654
area, 240
breakaway, 92, 154, 155, 240, 347, 358,360, 391, 393, 464, 465, 589, 622
Diamondbottoms, 165, 550, 566, 646, 647tops, 165, 566Dome, 477Double bottoms, 3, 5, 182, 288, 320, 340,474, 47!, 635, 636
decline, 153, 158loss, 159low, 161
Gap, 159, 161, 168, 202,240
•
bottoms, 262, 266, 276, 278, 287, 516,517,550,579,675complex bottoms, 266, 276, 359complex tops, 266, 293, 294, 305, 341tops, 123,169, 198, 266, 290, 305, 309,311,315, 324, 373, 314, 395, 485, 529,566,574,592, 593,607,615Horn bottom, 320, 333, 417Horn top, 306, 307, 332, 417, 429Inner cup,151
Inside day, 328, 343, 404, 412, 415Inside week, 328, 425Internet, 3, 132, 196, 308, 380, 616Intraformation trade, 52, 450Investment style, 8Island reversals, 356
bottom, 357top, 357J-shape formation, 487, 489,491reversed, 487January effect, 4
Lead-in phase, 103, 104, 121, 122, 386duration, 108
height, 103, 104, 105, 107, 112,113, 114,115,122,130,131,132Left shoulder, 169Linear regression, 503, 524Logarithm scale, 106Measured movecascade, 371down, 85, 306, 369, 382, 449, 450, 451,558, 629, 646, 647nested, 370up, 88, 201, 304, 306, 307, 345, 346, 376,382, 463, 465, 543, 544, 558, 596, 616,621Measure rule. See Trading Tactics section ineach chapter
Megaphone, 12, 15, 31, 44, 55, 59, 60, 77,78,90Mental stop, 239Minor high/low, 16, 31, 59, 549, 563Momentum, 120Money management, 9
Most likely decline/rise, 20, 655Most likely gain, 6Moving average, 640Multiple bumps, 108
Multiple heads, 277Multiple shoulders, 277, 309Multiple tops, 601
Neckline, 265, 267, 278, 292, 294, 306One-day reversal, 26, 42, 57, 58, 134, 169,196,251,321,557,358,394,427,653One-week reversal, 321, 427, 653Outlier, 6, 136Outside day, 404Outside week, 328
Fullback, 32, 35, 209, 298, 315, 504, 523,565,654Pulling the trigger, 8Recovery low, 158
Recovery phase, 159Rectangle, 74, 213, 216, 217bottom, 439, 454, 456
top, 453Relative strength index, 640Resistance, 53Resistance area, 169, 484Resistance level, 85, 224Retest of the low, 186Reversal, 654Right shoulder, 169Rising wedge. See Wedge, risingRise-retrace trade, 438Rounding bottoms, 101, 702, 139, 795, 196,277, 278, 466, 489, 517, 549. See ahaSaucers; Scallops
Rounding tops, 309, 310, 477, 582Rounding turn, 371, 372, 466Run phase, 131
Saucers, 371, 372, 466, 468, 469Saucer-with-handle patterns, 145Saw-tooth pattern, 3 84
Scaling, 122Scallops, 371, 372,466ascending, 487, 574, 575, 622, 623descending, 487, 600
Second leg, 371,384Selling climax, 394Sell line, 130, 131, 132, 133Sell zone, 130Shark-32, 501Short sale, 293
Shoulder, 293Spike, 325Spoon formation, 101
Standard & Po