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Thomas Bulkowski’s successful investment activities allowed him to retire at age 36. He is an internationally known author and trader with 30+ years of stock market experience and widely regarded as a leading expert on chart patterns. He may be reached at

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Bulkowski’s Busted Head-and-Shoulders Bottoms

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Industrials (^DJI):
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As of 08/17/2017
21,751 -274.14 -1.2%
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Written by and copyright © 2005-2017 by Thomas N. Bulkowski. All rights reserved. Disclaimer: You alone are responsible for your investment decisions. See Privacy/Disclaimer for more information.

Information on busted chart patterns is discussed in my book, Visual Guide to Chart PatternsVisual Guide to Chart Patterns book.. You can find information in the book in Chapter 22: "Busted Pattern Buy Setups" (starting on page 229) and in Chapter 25, "Busted Pattern Sell Signals" starting on page 271.

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Busted Head-and-Shoulders Bottom Summary

A stock forms a head-and-shoulders bottom which confirms as a valid pattern when price closes above the neckline or right armpit (depending on neckline slope). Price rises less than 10% before dropping and closing below the bottom of the chart pattern. This busts the upward breakout.

For busted patterns in bull markets, the average drop is 16% with a median drop of 10%. If you trade a single busted head-and-shoulders bottom, the average decline is 24% with a median drop of 19%. Those are the results from perfect trades.

Single Busted Head-and-Shoulders Bottoms

Picture of Stillwater Mining (SWC) on the daily scale.

The figure shows Stillwater Mining (SWC) on the daily scale, an example of a single busted head-and-shoulders bottom. Price breaks out upward from the chart pattern at A, but does not rise far. The stock tumbles to B where it closes below the bottom of the chart pattern (below the head). This busts the pattern.

Price in this example recovers but does not exceed the top of the head-and-shoulders. Instead, price continues lower more than 10% below the bottom of the head-and-shoulders. That ends the bust counting at one.

To identify a single busted head-and-shoulders bottom, look for:

  1. Price must confirm the head-and-shoulders bottom by closing above the neckline (down sloping necklines) or above the right armpit. That occurs at A in the figure.
  2. Price must rise less than 10% above the neckline.
  3. Price then closes below the bottom of the head-and-shoulders bottom (B).
  4. Price continues dropping at least 10% without closing above the top of the head-and-shoulders.

If price fails to drop more than 10% below the bottom of the head-and-shoulders bottom, then it could be forming a double bust.

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Double Busted Head-and-Shoulders Bottoms

Picture of MGE Energy (MGEE) on the daily scale.

I show a chart of MGE Energy (MGEE) on the daily scale. Price forms a head-and-shoulders bottom on the left side of the chart. Since the neckline, which normally connects the two armpits, slopes upward (not shown), I use a close above the right armpit to validate the chart pattern. That happens at A.

Price eventually drops to B and closes below the head. This busts the head-and-shoulders bottom for the first time. Price drops less than 10% below the head before recovering and closing above the top of the chart pattern. That happens at C. Price eventually continues rising more than 10% above the top of the chart pattern.

For a double bust, look for these elements.

  1. Price must confirm the head-and-shoulders bottom by closing above the neckline or right armpit (A).
  2. Price rises less than 10% before reversing.
  3. Price closes below the bottom of the chart pattern (B). This busts the pattern for the first time.
  4. Price drops less than 10% below the bottom of the head-and-shoulders bottom.
  5. Price closes above the top of the head-and-shoulders bottom. This busts the chart pattern for the second time (C).
  6. The stock rises at least 10% above the top of the head-and-shoulders bottom.

A double busted head-and-shoulders bottom turns into a triple bust when the rise after the second bust is less than 10% and price then closes below the bottom of the chart pattern.

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Head-and-Shoulders Bottom, Triple Busts

Picture of Monsanto (MON) on the daily scale.

I show a picture of Monsanto (MON) on the daily scale. Since the neckline slopes downward (the diagonal blue line that looks black), a close above this line confirms the head-and-shoulders bottom as a valid chart pattern. That happens at A.

Price does not rise much before collapsing and busting the chart pattern for the first time at B. Price drops little before zipping up to C, which is a close above the top of the chart pattern. This busts the head-and-shoulders bottom for the second time.

Again, price rises less than 10% before reversing and closing below the bottom of the chart pattern, at D. That busts the pattern for the third time. From there, I stop counting the busts.

For a triple (or more) busted head-and-shoulders bottom, look for the following:

  1. Find a double busted head-and-shoulders bottom except that price fails to rise more than 10% after the second bust (the rise above the top red line at C). In this example, B is the first bust, and C is the second.
  2. Price closes below the bottom of the chart pattern, busting the pattern for the third time (D).
  3. Price may continue to bust the pattern if it crosses the pattern and then fails to move more than 10% above the top or below the bottom of the chart pattern. The busted count stops whenever the move is more than 10% above or below the head-and-shoulders bottom.
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Methodology for Testing Busted Head-and-Shoulders Bottoms

I found 2,090 head-and-shoulders bottoms or complex head-and-shoulders bottoms in 891 stocks dating back as far as July 1991 to October 2011. Few stocks covered the entire period. All of the head-and-shoulders bottoms I found manually either using a historical search or real time (looking at my stocks each day). The real time additions prevented any look-ahead bias since I am not privy to future price movements.

I then used software to measure performance and flag potential busted chart patterns.

Gauging performance uses the same method as I used to catalog non-busted chart patterns. That is, the search for the new ultimate high or low proceeded as described in the glossary. Thus, the numbers reported in Busted Head-and-Shoulders Bottoms Results (next section) should be considered perfect trades. Do not expect to duplicate the results in actual trading. The numbers should be used only for comparison purposes to other chart patterns.

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Busted Head-and-Shoulders Bottom Results

The following numbers are the results from perfect trades in bull markets, unless otherwise noted. Do not expect actual trading results to match those discussed below. Use the numbers only for comparison purposes with other chart patterns.

How often do head-and-shoulders bottoms bust?

  • Single busts: 8% of the time.
  • Double busts: 4% of the time.
  • Triple or more busts: 2% of the time.
  • All busted head-and-shoulders bottoms: 14% of the time.

Of busted head-and-shoulders bottoms, what is the frequency distribution?

  • Single busts: 56% of busted head-and-shoulders bottoms bust only once.
  • Double busts: 32% of them bust twice.
  • Triple or more busts: 13% of them bust at least three times.

If you trade a busted head-and-shoulders bottom, there is a 56% probability that it will bust just once. Thus, 44% fail to show price dropping by more than 10% below the bottom of the head-and-shoulders bottom.

What is the average drop for single busted head-and-shoulders bottoms? Answer: As measured from the bottom (the lowest valley) of the chart pattern to the ultimate low:

  • The average drop: 24%
  • Median (mid range) drop: 19%
  • The average drop (for comparison) of head-and-shoulders tops (busted and non-busted) is: 16% from 2,125 head-and-shoulders bottoms (simple and complex) in bull markets, using data updated October 2011.

What is the drop from perfect trades after all busted head-and-shoulders bottoms?

  • The average drop in a bull market: 16%
  • Median (mid range) drop in a bull market: 10%
  • The average drop in a bear market: 33%
  • Median drop in a bear market: 19%

What is the failure rate of all busted head-and-shoulders bottoms in bull markets? The answer appears in the below table.

Failure Rate for Busted Head-and-Shoulders Bottoms
Failure rate:  5%  10%  15%  20%  25%  30%  35%  50%  75%  >75% 
Number of head-and-shoulders bottoms:67472728162051230
Percentage:30%21%12%12%7%9%2%5%1%0%
Cumulative:30%51%63%75%82%91%93%99%100%100%

For example, there were 67 head-and-shoulders bottoms that failed to show price dropping at least 5% below the bottom of the head-and-shoulders bottom. Those 67 represent 30% of all busted head-and-shoulders bottoms. On a cumulative basis (a running total), the 67 also represent 30% of all busted head-and-shoulders bottoms.

The median drop of all busted head-and-shoulders bottoms is 10%. You can see that in the 10% column. Thus, half of all busted head-and-shoulders bottoms will see price drop 10% in a bull market, providing they are traded perfectly.

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Trading Busted Head-and-Shoulders Bottoms

Picture of Metalico (MEA) on the daily scale.

I show a picture of Metalico (MEA) on the daily scale. The head-and-shoulders bottom is shown with a blue neckline connecting the two armpits.

Price confirms the chart pattern when it closes above the neckline at A. Price rises only to B before tumbling.

When price closes below the bottom of the chart pattern, which I show as a horizontal blue line at C, it busts the chart pattern for the first time. Price continues lower to D and then on to E.

If you place an order to short the stock a penny below the head, you would have entered the trade at 5.28. Since a straight-line run developed, placing an order to cover the short a penny above the prior candle's high would exit the stock at D, at 4.56 for a gain of almost 14%.

If you were lucky enough to exit at E, the gain would have been 31%.

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Additional Trading Tip for Busted Head-and-Shoulders Bottoms

Since the sample counts are few, they tend to show wide differences between performance, so I do not report them here (they are likely unreliable). Here are the more important ones I found.

In a bull market, the median length from the trend start to the left shoulder low is 56 days. When the time is longer than the median, the average drop of busted head-and-shoulders bottoms is 12% (103 samples). When it's equal to or shorter than the median, the drop averages 19% (104 samples).

Look for head-and-shoulders bottom with a trend start closer than 56 days.

The median drop from the trend start to the top of the head-and-shoulders bottom is 11% (for those with trend starts above the top of the pattern, which is nearly all of the cases).

Those with drops more than the median show busted performance of 13% (price drops 13% below the head). When the median drop from the trend start to the top of the head-and-shoulders bottom is less than 11%, the busted performance is 19% (both use 99 samples, each).

Look for head-and-shoulders bottom with a trend start closer than 11% above the top of the head-and-shoulders bottom.

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Entry Setup for Busted Head-and-Shoulders Bottoms

Picture of my dog

As an entry setup, here are the rules for trading busted head-and-shoulders bottoms.

  1. Price must confirm a head-and-shoulders bottom by closing above the neckline (when it slopes downward) or above the right armpit high (for up-sloping necklines).
  2. Price rises less than 10% (measured from the breakout price, not the top of the chart pattern) before reversing and closing below the bottom (head) of the head-and-shoulders bottom. This busts the pattern.
  3. Find the trend start. If the trend start is more than 56 days before the left shoulder low, skip the trade.
  4. If the trend start is more than 11% above the top of the head-and-shoulders bottom, skip the trade.
  5. Place an order to short the stock if price closes a penny below the head.
  6. Place a stop loss order above the top of the chart pattern. If the stop location is too far away, adjust the stop accordingly, but recognize that you stand a greater chance of failure (price often retraces back into the pattern before resuming the down trend).
  7. Cover the short when the trend changes.

-- Thomas Bulkowski

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Written by and copyright © 2005-2017 by Thomas N. Bulkowski. All rights reserved. Disclaimer: You alone are responsible for your investment decisions. See Privacy/Disclaimer for more information. Black holes are out of sight!