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Written and copyright © 2011-2013 by Thomas N. Bulkowski. All rights reserved.
This article compares the performance of busted patterns with themselves and their non-busted counterparts.
How Often Do Chart Patterns Bust?
Frequency of Busted Chart Patterns in Bull Markets
As a Percentage of All Patterns
Sorted by Single Busts
| Busted Chart Pattern | Single
Bust | Double
Bust | Triple+
Bust |
|---|
| Busted symmetrical triangles, down breakout | 30% | 7% | 6% |
| Busted descending triangles, down breakout | 29% | 6% | 6% |
| Busted rectangle, down breakout | 28% | 5% | 9% |
| Busted ascending triangles, down breakout | 27% | 6% | 7% |
| Busted triple tops | 24% | 6% | 7% |
| Busted double tops | 23% | 5% | 5% |
| Busted head-and-shoulders tops | 20% | 4% | 4% |
| Busted ascending triangles, up breakout | 14% | 8% | 4% |
| Busted triple bottoms | 14% | 5% | 4% |
| Busted symmetrical triangles, up breakout | 13% | 9% | 5% |
| Busted double bottoms | 11% | 4% | 1% |
| Busted descending triangles, up breakout | 10% | 8% | 5% |
| Busted rectangle, up breakout | 10% | 6% | 7% |
| Busted head-and-shoulders bottom | 8% | 4% | 2% |
Analysis
The above table shows how often a chart pattern busts as a percentage of all chart patterns of the same type and breakout direction. For example, I compared how often
symmetrical triangles in bull markets with downward breakouts busted compared to those symmetricals that did not bust.
Notice how every chart pattern with a downward breakout is in the top half of the table! Bearish chart patterns bust most often. This makes sense since bull markets
tend to last longer than bear ones and bearish chart patterns in bull markets are trying to swim against the current. The downward move is blunted by a rising market and a
rising industry.
To look at this list differently, this shows the safest chart patterns on the bottom of the list and the riskiest at the top for buy-and-hold and position trading styles.
Swing traders will want to play the risky ones. Buy-and-hold (investors) will want to keep trend changes to a minimum.
How Often Do Chart Patterns Bust, Part II?
Frequency of Busted Patterns in Bull Markets
As a Percentage of Busted Patterns
Sorted by Double Busts
| Busted Chart Pattern | Single
Bust | Double
Bust | Triple+
Bust |
|---|
| Busted descending triangles, up breakout | 43% | 34% | 22% |
| Busted symmetrical triangles, up breakout | 50% | 32% | 19% |
| Busted ascending triangles, up breakout | 54% | 32% | 15% |
| Busted head-and-shoulders bottom | 56% | 32% | 13% |
| Busted rectangle, up breakout | 43% | 27% | 31% |
| Busted double bottoms | 66% | 27% | 8% |
| Busted triple bottoms | 61% | 23% | 16% |
| Busted double tops | 70% | 16% | 16% |
| Busted symmetrical triangles, down breakout | 71% | 16% | 14% |
| Busted triple tops | 65% | 15% | 19% |
| Busted ascending triangles, down breakout | 67% | 15% | 17% |
| Busted head-and-shoulders tops | 70% | 15% | 15% |
| Busted descending triangles, down breakout | 72% | 14% | 14% |
| Busted rectangle, down breakout | 66% | 13% | 21% |
Analysis
This table show how often busted chart patterns occur as a percentage of all busted patterns. In other words, it is a frequency distribution of single, double and triple (or more) busts.
When I am trading busted chart patterns, I want to know how likely my chart pattern will double or triple bust, since I want to select only those chart pattern with single
busts. This table shows those numbers.
I always thought that symmetrical triangles tended to double bust most often, but the list says that's not true. Descending triangles with upward breakouts double bust more often.
This list is similar to the prior one in that after the busting is finished, price is moving higher. In the prior table, topping the list was a chart pattern with a downward
breakout that single busted. That meant price continued higher after the bust.
This table shows that upward breakouts that double busted top the list. The chart patterns breakout upward, bust (moving downward) and bust again (moving upward).
I like to trade descending triangles with downward breakouts that single bust. This table says that combination has the next to lowest double bust rate (14%). It's the safest
play. Why? Because descending triangles with downward breakouts have the highest single bust rate and the smallest total of double and triple busts. That's exactly the combination I'm
looking for. In other words, when I buy a single busted pattern, I want to minimize the possibility of the chart pattern double or triple busting on me.
Performance Compared to Other Chart Patterns
Performance of Busted and Non-Busted Chart Patterns in Bull Markets, Sorted Alphabetically
| Busted Chart Pattern | Avg
Move | Median
Move | Chart Pattern | Avg
Move | Median
Move |
|---|
| Busted ascending triangles, down breakout | 26% | 21% | Ascending triangles, up breakout | 34% | 22% |
| Busted ascending triangles, up breakout | -11% | -9% | Ascending triangles, down breakout | -14% | -13% |
| Busted descending triangles, down breakout | 29% | 24% | Descending triangles, up breakout | 35% | 29% |
| Busted descending triangles, up breakout | -12% | -6% | Descending triangles, down breakout | -15% | -11% |
| Busted double bottoms | -15% | -12% | Double tops | -16% | -14% |
| Busted double tops | 28% | 19% | Double bottoms | 38% | 28% |
| Busted head-and-shoulders bottom | -16% | -10% | Head-and-shoulders tops | -16% | -12% |
| Busted head-and-shoulders tops | 31% | 20% | Head-and-shoulders bottom | 30% | 23% |
| Busted rectangle, down breakout | 34% | 16% | Rectangle, up breakout | 36% | 29% |
| Busted rectangle, up breakout | -10% | -7% | Rectangle, down breakout | -12% | -12% |
| Busted symmetrical triangles, down breakout | 28% | 21% | Symmetrical triangles, up breakout | 29% | 22% |
| Busted symmetrical triangles, up breakout | -10% | -8% | Symmetrical triangles, down breakout | -14% | -13% |
| Busted triple bottoms | -15% | -12% | Triple tops | -16% | -13% |
| Busted triple tops | 29% | 20% | Triple bottoms | 32% | 24% |
Analysis
The big surprise for me is that the regular chart patterns beat the busted variety. However, the comparison is inexact. The busted patterns include all three types of busts: single,
double, and triple (triple include three or more busts). The regular chart patterns include those that bust, meaning if price was supposed to rise and it only climbs 5% before turning
around and dropping (busting), the 5% is included in the average and median rises.
I do it this way because you can't know before entering the trade that it will single bust only (for busted patterns) or that it will not bust at all (for regular chart patterns).
Looking at the numbers, the regular chart patterns beat the busted ones in nearly every case. The only one is busted head-and-shoulders tops beat the performance of regular
head-and-shoulders bottoms by one percentage point. I show that entry in red.
Performance of Busted Chart Patterns Sorted Alphabetically
Performance of Busted Chart Patterns in Bull Markets, Sorted Alphabetically
| Chart Pattern | Single Bust Patterns | All Busted Patterns |
|---|
Occurrence
Rate | Avg
Move | Median
Move | Occurrence
Rate | Avg
Move | Median
Move |
|---|
| Busted ascending triangles, down breakout | 27% | 40% | 31% | 40% | 26% | 21% |
| Busted ascending triangles, up breakout | 14% | -20% | -18% | 26% | -11% | -9% |
| Busted descending triangles, down breakout | 29% | 45% | 37% | 40% | 29% | 24% |
| Busted descending triangles, up breakout | 10% | -24% | -20% | 22% | -12% | -6% |
| Busted double bottoms | 11% | -21% | -20% | 16% | -15% | -12% |
| Busted double tops | 23% | 38% | 31% | 33% | 28% | 19% |
| Busted head-and-shoulders bottom | 8% | -24% | -19% | 14% | -16% | -10% |
| Busted head-and-shoulders tops | 20% | 42% | 35% | 28% | 31% | 20% |
| Busted rectangle, down breakout | 28% | 61% | 30% | 42% | 34% | 16% |
| Busted rectangle, up breakout | 10% | -18% | -18% | 22% | -10% | -7% |
| Busted symmetrical triangles, down breakout | 30% | 41% | 30% | 42% | 28% | 21% |
| Busted symmetrical triangles, up breakout | 13% | -19% | -18% | 27% | -10% | -8% |
| Busted triple bottoms | 14% | -20% | -19% | 23% | -15% | -12% |
| Busted triple tops | 24% | 43% | 34% | 37% | 29% | 20% |
Definitions
-
- All busted patterns
- Uses single, double, and triple busted patterns. Triple busts are those that bust at least three times.
- Avg move
- The average move from the top of the chart pattern to the ultimate high or the move from the bottom of the chart pattern
to the ultimate low.
- Median move
- Same as the average except using the median (midrange in a sorted list) move.
- Occurrence rate
- This is how often busted patterns occur in the chart pattern type as a percentage of all samples in the same market (bull or bear) and breakout direction (up or down).
- Single busted patterns
- Chart patterns that bust only once before moving away by more than 10% either above the top or below the bottom of the chart pattern.
Analysis
I show the largest number in red, for each column and breakout direction.
Notice that busted rectangles with downward breakouts are the only chart pattern with three numbers highlighted in red. I believe that this chart pattern performance is due to
low sample counts (122), so do not put too much weight on it. The numbers will likely change with additional samples.
Performance of Busted Chart Patterns Sorted by Occurrence
Performance of Busted Chart Patterns in Bull Markets
| Chart Pattern | Single Bust Patterns | All Busted Patterns |
|---|
Occurrence
Rate | Avg
Move | Median
Move | Occurrence
Rate | Avg
Move | Median
Move |
|---|
| Downward Breakout, Busted Move Upward |
|---|
| Busted head-and-shoulders tops | 20% | 42% | 35% | 28% | 31% | 20% |
| Busted double tops | 23% | 38% | 31% | 33% | 28% | 19% |
| Busted triple tops | 24% | 43% | 34% | 37% | 29% | 20% |
| Busted ascending triangles, down breakout | 27% | 40% | 31% | 40% | 26% | 21% |
| Busted descending triangles, down breakout | 29% | 45% | 37% | 40% | 29% | 24% |
| Busted rectangle, down breakout | 28% | 61% | 30% | 42% | 34% | 16% |
| Busted symmetrical triangles, down breakout | 30% | 41% | 30% | 42% | 28% | 21% |
| Upward Breakout, Busted Move Downward |
|---|
| Busted head-and-shoulders bottom | 8% | -24% | -19% | 14% | -16% | -10% |
| Busted double bottoms | 11% | -21% | -20% | 16% | -15% | -12% |
| Busted descending triangles, up breakout | 10% | -24% | -20% | 22% | -12% | -6% |
| Busted rectangle, up breakout | 10% | -18% | -18% | 22% | -10% | -7% |
| Busted triple bottoms | 14% | -20% | -19% | 23% | -15% | -12% |
| Busted ascending triangles, up breakout | 14% | -20% | -18% | 26% | -11% | -9% |
| Busted symmetrical triangles, up breakout | 13% | -19% | -18% | 27% | -10% | -8% |
Analysis
When sorted by occurrence, notice that head-and-shoulders tops and bottoms are at the start of each list. That means these NON-BUSTED chart patterns perform better than ones
like symmetrical triangles, which are at the bottom of the list. Symmetrical triangles bust almost twice as often as head-and-shoulders. Wow!
To put it another way, if you were to trade a normal (non-busted) head-and-shoulders chart pattern, you will trade fewer patterns that bust (fail) than if you were to trade, say,
symmetrical triangles.
If you are looking to trade busted chart patterns, then symmetrical triangles will give you the most opportunity since they bust most often.
Notice that downward breakouts bust more often than upward breakouts. In fact, the most frequent busted pattern with upward breakouts (symmetrical triangles) bust less often
than the least busted pattern with downward breakouts (head-and-shoulders tops), at 27% to 28%, respectively.
What does this mean? I believe that it shows the upward bias of the market over time. When price breaks out downward, it's like trying to swim against the current. Upward breakouts
bust less often because they are swimming with the current.
Performance of Busted Chart Patterns Sorted by Average Move
Performance of Busted Chart Patterns in Bull Markets
| Chart Pattern | Single Bust Patterns | All Busted Patterns |
|---|
Occurrence
Rate | Avg
Move | Median
Move | Occurrence
Rate | Avg
Move | Median
Move |
|---|
| Downward Breakout, Busted Move Upward |
|---|
| Busted ascending triangles, down breakout | 27% | 40% | 31% | 40% | 26% | 21% |
| Busted double tops | 23% | 38% | 31% | 33% | 28% | 19% |
| Busted symmetrical triangles, down breakout | 30% | 41% | 30% | 42% | 28% | 21% |
| Busted triple tops | 24% | 43% | 34% | 37% | 29% | 20% |
| Busted descending triangles, down breakout | 29% | 45% | 37% | 40% | 29% | 24% |
| Busted head-and-shoulders tops | 20% | 42% | 35% | 28% | 31% | 20% |
| Busted rectangle, down breakout | 28% | 61% | 30% | 42% | 34% | 16% |
| Upward Breakout, Busted Move Downward |
|---|
| Busted rectangle, up breakout | 10% | -18% | -18% | 22% | -10% | -7% |
| Busted symmetrical triangles, up breakout | 13% | -19% | -18% | 27% | -10% | -8% |
| Busted ascending triangles, up breakout | 14% | -20% | -18% | 26% | -11% | -9% |
| Busted descending triangles, up breakout | 10% | -24% | -20% | 22% | -12% | -6% |
| Busted triple bottoms | 14% | -20% | -19% | 23% | -15% | -12% |
| Busted double bottoms | 11% | -21% | -20% | 16% | -15% | -12% |
| Busted head-and-shoulders bottom | 8% | -24% | -19% | 14% | -16% | -10% |
Analysis
After sorting the list by the average move, it appears that the price move is not a large one from the top to the bottom of the two lists. However, that's deceiving. In the bottom half
of the table, the drop travels from 10% to 16%. That is a 60% improvement!
Notice that the head-and-shoulders bottom is the best performing of the upward breakout group. In the top list,
head-and-shoulders comes in second place with a 31% rise above the top of the chart pattern.
When sorted by the average move, busted rectangles with downward breakouts have the best average performance by gaining 42% above the top of the rectangle. That's a very nice move but
it includes all types of busts (single, double, triple or more). Limiting the move to single busts, the average gain rises to 61%. Compared to the other chart patterns, that seems unusually
high and my guess is that a low sample count is responsible.
A check of the numbers shows that there were just 122 busted rectangle samples found out of 1,681 busted and non-busted rectangles. In other words, the 61% number should not be relied upon.
Performance of Busted Chart Patterns Sorted by Median Move
Performance of Busted Chart Patterns in Bull Markets
| Chart Pattern | Single Bust Patterns | All Busted Patterns |
|---|
Occurrence
Rate | Avg
Move | Median
Move | Occurrence
Rate | Avg
Move | Median
Move |
|---|
| Downward Breakout, Busted Move Upward |
|---|
| Busted rectangle, down breakout | 28% | 61% | 30% | 42% | 34% | 16% |
| Busted double tops | 23% | 38% | 31% | 33% | 28% | 19% |
| Busted triple tops | 24% | 43% | 34% | 37% | 29% | 20% |
| Busted head-and-shoulders tops | 20% | 42% | 35% | 28% | 31% | 20% |
| Busted symmetrical triangles, down breakout | 30% | 41% | 30% | 42% | 28% | 21% |
| Busted ascending triangles, down breakout | 27% | 40% | 31% | 40% | 26% | 21% |
| Busted descending triangles, down breakout | 29% | 45% | 37% | 40% | 29% | 24% |
| Upward Breakout, Busted Move Downward |
|---|
| Busted descending triangles, up breakout | 10% | -24% | -20% | 22% | -12% | -6% |
| Busted rectangle, up breakout | 10% | -18% | -18% | 22% | -10% | -7% |
| Busted symmetrical triangles, up breakout | 13% | -19% | -18% | 27% | -10% | -8% |
| Busted ascending triangles, up breakout | 14% | -20% | -18% | 26% | -11% | -9% |
| Busted head-and-shoulders bottom | 8% | -24% | -19% | 14% | -16% | -10% |
| Busted triple bottoms | 14% | -20% | -19% | 23% | -15% | -12% |
| Busted double bottoms | 11% | -21% | -20% | 16% | -15% | -12% |
Analysis
The median move is the middle move in a sorted list. Thus, half the samples will be less than the median and half will be more. A large number can sway an average. The average of
2, 2, 2, 2, and 100 is 21.6, well away from 2 but the median is 2.
In other words, this is perhaps the most important table in so far.
Look at the first row, busted rectangles with downward breakouts. The average move is 61% (single busted) but the median move is half that, or 30%. It means a few busted rectangles made
spectacular moves, which pulled up the average.
When the average and median are close to each other, it is often (but not always, of course) an indication of a large number of samples used in the test. Wider spreads often will have
fewer samples.
This table shows my favorite chart pattern. Busted descending triangles. I knew there was a reason I liked them. They have the best median gain after a downward breakout (meaning
price rises after it busts the triangle).
Notice that in the bottom half of the table, it shows double and triple bottoms. When those bust, price drops dramatically, more than any of the other chart patterns. That means if you
own (long) a stock and it shows a busted double or triple bottom, sell immediately.
-- Thomas Bulkowski
Written and copyright © 2011-2013 by Thomas N. Bulkowski. All rights reserved. No matter how cynical you become, it's never enough to keep up. -- Lily Tomlin
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