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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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Chart Patterns: After the Buy
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Bulkowski's Busted Performance

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Busted
Patterns
Candles Chart
Patterns
Event
Patterns
Small Patterns
Market
Industrials (^DJI):
Transports (^DJT):
Utilities (^DJU):
Nasdaq (^IXIC):
S&P500 (^GSPC):
As of 06/23/2017
21,395 -2.53 0.0%
9,389 68.83 0.7%
725 -2.17 -0.3%
6,265 28.56 0.5%
2,438 3.80 0.2%
YTD
8.3%
3.8%
10.0%
16.4%
8.9%
Tom's Targets    Overview: 06/15/2017
21,600 or 21,000 by 07/01/2017
9,100 or 9,600 by 07/01/2017
720 or 745 by 07/01/2017
6,300 or 6,000 by 07/01/2017
2,525 or 2,390 by 07/01/2017

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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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 PatternSingle
 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.

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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 PatternSingle
 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.

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Performance Compared to Other Chart Patterns

Performance of Busted and Non-Busted Chart Patterns in Bull Markets, Sorted Alphabetically
Busted Chart PatternAvg
 Move 
 Median
Move 
 Chart PatternAvg
 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.

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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.

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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.

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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.

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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.

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-- Thomas Bulkowski

See Also

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. No matter how cynical you become, it's never enough to keep up. -- Lily Tomlin