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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 CPSetup

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Busted
Patterns
Candles Chart
Patterns
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Patterns
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Market
Industrials (^DJI):
Transports (^DJT):
Utilities (^DJU):
Nasdaq (^IXIC):
S&P500 (^GSPC):
As of 10/19/2017
23,163 5.44 0.0%
9,887 -13.16 -0.1%
748 8.24 1.1%
6,605 -19.15 -0.3%
2,562 0.84 0.0%
YTD
17.2%
9.3%
13.4%
22.7%
14.4%
Tom's Targets    Overview: 10/16/2017
23,300 or 22,500 by 11/01/2017
10,300 or 9,700 by 11/01/2017
775 or 725 by 11/01/2017
6,700 or 6,500 by 11/01/2017
2,625 or 2,525 by 11/01/2017

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.

I found the CPSetup chart pattern on the weekly scale (where it works best) when searching for ways to signal a sale from a long-term holding.

I call it the CPSetup (chart pattern setup) since it is more than a chart pattern, but the real reason is I could not think of a better name for it.

Please remember that all performance statistics in this article are from hundreds of perfect trades. Use them as comparisons to other chart patterns, not as indicators of how well you might do trading.

First discovered in November 2015 by Thomas Bulkowski.

The CPSetup pattern
CPSetup

 

CPSetup: Important Bull Market Results

Overall performance rank (1 is best): Not ranked
Break even failure rate: 6% (weekly: 3%)
Average rise: 48% (weekly: 60%)
Throwback rate: 57%
Percentage meeting price target: 87% (weekly: 89%)

The above numbers are based on hundreds of perfect trades. See the glossary for definitions.

CPSetup: Identification Guidelines

CharacteristicDiscussion
RiseLook for a long-term upward run leading to the start of the flat bottom (the median is 6 months from the trend start to the start of the chart pattern). In the picture to the right, it's move A (I drew the trendline along the peaks for clarity).
Flat bottomPrice forms a top, but the bottom of this pattern is flat with at least two touches of a horizontal (or nearly so) trendline. See B. This is an area of support.
DipPrice drops at the end of the pattern, suggesting support has given way, leading to a downward move, C. This surprises traders who sell or sell short only to be fooled when the price rises.
BreakoutThe dip is short lived before the stock rises and closes above the top of the chart pattern (a close above line E). When that happens, it breaks out upward and signals a buy. Line D shows the move upward after the breakout.
ConfirmationThe stock must close above the top of the chart pattern or else you are just looking at squiggles on the price chart.
CPSetup
Components ABCE make up the CPSetup

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CPSetup: Trading Tips

The following tips for the CPSetup I found in my spreadsheet. It suggests ways to improve the selection of better performing patterns.

I looked at 367 stocks and found 518 patterns on the daily scale and 213 on the weekly. The following is for the daily scale, as is most of this article.

Trading TacticExplanation
Trend startThe median time from the trend start to the start of the chart pattern is 178 calendar days. Patterns with shorter medians performed better with rises averaging 51% versus 44%, respectively. Presumably, you are entering the trade near the start of the trend, not near its end.
RetraceAfter price pierces support, it drops a median of 4% below the bottom of that support (this is the drop from B to C in the adjacent figure). Patterns with larger drops perform better after an upward breakout (56% versus 40% average rise).
StopA stop placed below B will trigger 19% of the time. Below C, means a 2% hit rate.
Measure ruleMeasure the height of the chart pattern, from the top at E to the low at C (shown as vertical red line A). Add the height to E to get a target (shown as red line D). Price reaches the target 87% of the time.
The measuere rule for the CPSetup.
The Measure Rule

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CPSetup: Example

The chart pattern setup, example

The above chart shows two CPSetups on the daily chart. The first is in green, so let's talk about that one.

The trend start is at A. If you don't know how to find the trend start, see the glossary.

Price rises to E where the chart pattern begins. I'm not worried about the small peak (overshoot) before the start of the chart pattern. What's important is that B is flat, resting on support.

Price drops to F, flushing out owners of the stock.

The stock recovers and busts the downward breakout when it closes above the top of the chart pattern. That happens at G. This flushes out those traders that shorted the stock after the downward breakout.

In this example, a throwback occurs at H.

For the second CPSetup, the trend start is also at A. The pattern begins at B and ends at C. Price confirms the pattern when it gaps above the top of the chart pattern and closes there. The rise continues to D and beyond.

-- Thomas Bulkowski

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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. If the code and comments disagree, then both are probably wrong. -- Norm Schryer, Bell Labs.