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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 Best Stop Locations

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Busted
Patterns
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Market
Industrials (^DJI):
Transports (^DJT):
Utilities (^DJU):
Nasdaq (^IXIC):
S&P500 (^GSPC):
As of 09/20/2017
22,413 41.79 0.2%
9,654 147.29 1.5%
732 -5.08 -0.7%
6,456 -5.28 -0.1%
2,508 1.59 0.1%
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6.8%
10.9%
19.9%
12.0%
Tom's Targets    Overview: 09/14/2017
22,450 or 21,500 by 10/01/2017
9,750 or 9,200 by 10/01/2017
775 or 730 by 10/01/2017
6,650 or 6,200 by 10/01/2017
2,600 or 2,425 by 10/01/2017

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.

My book, Trading BasicsTrading Basics: Evolution of a Trader book., pictured on the left, has an entire chapter dedicated to stops, starting on page 41.

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This page describes the best location for the initial stop loss order in chart patterns. With many chart patterns, the initial stop will be far from the current price. In that situation, use a volatility stop. For a tutorial on the types of stops, click here.

The following articles may also interest you.

See Also

The following chart patterns are arranged alphabetically. Use the following letters to take you to the pattern you seek.

     A   B   C   D   E   F   G   H   I   J-L   M-O   P   Q-R   S   T   U   V-Z 


    -- A --

  • Adam & Adam double bottoms Place the stop a penny below the lowest of the two bottoms. If the most recent bottom spike is unusually long, say twice the length of a normal downward price spike, then expect price to reverse midway down the candle.
  • Adam & Adam double tops See Double tops.
  • Adam & Eve double bottoms The Eve bottom makes for a good stop location because the wide, rounded bottom is a support zone. Place the stop a few pennies below the bottom.
  • Adam & Eve double tops See Double tops.
  • Ascending and inverted scallops Place a stop a few pennies below the right side low. If later price action takes out the stop, then there is a good chance that the trend has changed from up to down.
  • Ascending broadening wedge For upward breakouts: Place a stop on the lower side of the chart pattern or the most recent minor low, whichever is closer. Also, measure the length of the most recent rise (swing low to swing high), multiply by 67% and subtract this from the swing high. In other words, this is a slightly larger decline than a Fibonacci retrace of 62%. Testing has shown that a stop placed 67% down will work two-thirds of the time. Downward breakouts: Put the stop at the top side of the chart pattern. Pullbacks tend to rise well into the chart pattern, so anything closer and you stand a good chance of being stopped out. A Fibonacci-like retrace of 67% also works well in this situation. Measure the swing high to low, multiply the result by 67% and add it to the swing low price. The result is where you place a stop.
  • Ascending scallops The decline (throwback or normal price movement) after an upward breakout can drop price almost to the bottom of the scallop. Thus, place a stop below the bottom of the scallop. That will likely be a long distance from the buy price, so a volatility stop will work better. Also consider using a retrace of 67% of the most recent swing low to high amount. If price drops more than this amount, then there is a good chance that price will continue down. For downward breakouts, a Fibonacci retrace of 50% should work well. Rarely will a pullback rise too far into the chart pattern. Most times, the pullback tops out near the bottom of the scallop before resuming the downtrend. Thus, placing the stop comfortably above this should work well.
  • Ascending triangles The lift-off from an ascending triangle is often messy. Thus, place a stop at the bottom of the chart pattern. Anything closer and you risk being stopped out during a throwback. For downward breakouts, the top of the triangle is a good place for the stop. Again, price often pulls back far up into the chart pattern, so do not place the stop too close.
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    -- B --

  • Big M A pullback sometimes rises well into the chart pattern, so the safest place is to put the stop above the peaks. You can use a Fibonacci-like retrace of 67% if you want it closer to the price action. Use the most recent move from swing high to swing low, multiply by 67% and add it to the lowest low in the chart pattern. Place the stop no closer than the result.
  • Big W A Big W is nothing more than a double bottom with tall sides. See Eve & Eve double bottoms.
  • Broadening bottoms After an upward breakout, price often retraces 50% of the widest distance in the chart pattern (the distance between the last top and bottom trendline touches). Place a stop below the 50% mark. For downward breakouts, in a large number of cases when a pullback begins the decline is over. Thus, for protection, you can place a stop just above the bottom of the chart pattern. If you want to tolerate a potentially larger loss, place a stop slightly above the top of the chart pattern. When a pullback does occur, price often rises above the mid point of the chart pattern.
  • Broadening formations, right-angled and ascending For upward breakouts, place a stop slightly below the bottom of the chart pattern. Throwbacks have a tendency to plunge well into the formation, sometimes dropping below the bottom of the chart pattern before recovering. For downward breakouts, pullbacks tend to rise at least to the middle of the pattern (at the widest point), so place a stop slightly above the highest peak in the chart pattern.
  • Broadening formations, right-angled and descending Upward breakouts: Throwbacks tend to drift down to about the midway point at the end of the chart pattern (half the distance from the horizontal top line to the lowest valley in the chart pattern). Place a stop below this midpoint. For downward breakouts, if price rises above the 38% Fibonacci retrace, there seems to be a good chance that price will continue rising. For safety, I would probably use the midpoint as described for upward breakouts as the stop location.
  • Broadening tops The upward breakout from a broadening top is likely to be choppy with a throwback retracing well into the chart pattern. For conservative traders, place a stop at the bottom of the chart pattern. If the last price cross from down to up created a minor low, then you can place a stop below that. In many case after a downward breakout, price climbed back to near the top of the chart pattern. Sometimes it busted out upward and sometimes the pullback resumed trending down. So, the stop location should be the top of the chart pattern.
  • Broadening wedge, ascending See Ascending Broadening wedge
  • Broadening wedge, descending See Descending Broadening wedge
  • Bump-and-run reversal bottoms In about half the cases I looked at, price during a throwback seems to ride the trendline drawn along the top of the chart pattern. Price touches this line, perhaps slides along it, and then turns back up. I would extended the line into the future and look for support zones nearby then place the stop just below the support zone.
  • Bump-and-run reversal tops The bottom trendline extended into the future looks to be a good place to position a stop. During a pullback, price often reached up about half way to the top of the chart pattern and if that coincides with the trendline, then price often drops from there. Thus, I would use the intersection of those two conditions (midway up the chart pattern from the trendline to the highest peak) and the trendline as the stop location.
  • -- C --

  • Channels Place the stop near the trendline on the side opposite the breakout. Move it to the trendline closest to the breakout once price moves far enough away from the channel.
  • Complex head-and-shoulders bottoms If price closes below the right shoulder low (the most recent right shoulder) then chances increase that the chart pattern is a dud. Thus, the right shoulder low should be the stop location.
  • Complex head-and-shoulders tops Place a stop above the most recent right shoulder peak. If price hits the stop then chances are that the stock will continue higher.
  • Cup with handle Many times price will throwback to the cup handle low and then rebound. Thus, place a stop a nickel or so below the lowest valley in the handle.
  • Cup with handle, inverted The highest peak in the handle represents an ideal stop location.
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    -- D --

  • Descending and inverted scallops Find the middle price between the highest peak and lowest valley in the chart pattern and place a stop a few pennies above that value. Occasionally, a pullback will reach that high.
  • Descending broadening wedges Most of the time, price lifts off cleanly from the top of this chart pattern. Throwbacks will take price down about a third of the way into the chart pattern before resuming the uptrend. The other times, the price move after the breakout is a choppy one and the throwback will cut half way or even lower into the pattern. I would probably use the mid point of the chart pattern as the stop location. That is, find the highest peak and lowest valley and place a stop midway between. For downward breakouts, the midpoint of the highest peak/lowest valley swing also looks like a good stop location. A pullback often takes price above the 38% Fibonacci retrace value, but rarely above the 50% mark. Thus, a stop placed there should do well unless price is intent on pushing out the top.
  • Descending scallops For upward breakouts, after the right lip a handle will form. Place a stop below this handle/consolidation region. For downward breakouts, the safest location is slightly above the right scallop lip. Most times, a pullback will rise to the bottom of the scallop and then decline, but I have seen instances where price climbed higher, so the scallop lips works best.
  • Descending triangles For upward breakouts, the bottom of the chart pattern represents the ideal stop location. Double busting, when price breaks out upward and then reverses, breaks out downward and reverses again, happens and that will take the stop out. Those situations are rare. For downward breakouts, place the stop a few pennies above the most recent minor high that occurs before the breakout.
  • Diamond bottoms Upward breakouts: The right half of the diamond is a symmetrical triangle. Place a stop a nickel or so below the apex of the triangle. For downward breakouts, use the price of the top of the chart pattern as the stop location.
  • Diamond tops For upward breakouts, place the stop below the bottom of the chart pattern, but in many cases, the apex of the symmetrical triangle formed in the right half of the diamond will also suffice. The triangle apex location also works for downward breakouts.
  • Double bottoms See the combination of Adam and Eve double bottoms for a more detailed stop assessment. However, as a general rule, place a stop below the lower of the two bottoms.
  • Double bottoms, Adam & Adam See Adam & Adam double bottoms.
  • Double bottoms, Adam & Eve See Adam & Eve double bottoms.
  • Double bottoms, Eve & Adam See Eve & Adam double bottoms.
  • Double bottoms, Eve & Eve See Eve & Eve double bottoms.
  • Double bottoms, ugly See Ugly double bottoms
  • Double tops, Double tops, Adam & Adam, Double tops, Adam & Eve, Double tops, Eve & Adam, Double tops, Eve & Eve The various combinations of double tops all use the same stop location. Place the stop a few pennies above the lower of the two peaks. If price pulls back and takes out the stop, chances are price will continue moving up, at least for a bit.
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    -- E --

  • Eve & Adam double bottoms Place the stop a penny below the lowest of the two bottoms. If the most recent bottom spike is unusually long, say twice the length of a normal downward price spike, then expect price to reverse midway down the candle.
  • Eve & Adam double tops See Double tops.
  • Eve & Eve double bottoms Place the stop a penny below the lowest of the two bottoms.
  • Eve & Eve double tops See Double tops.
  • -- F --

  • Falling wedge For upward breakouts, the bottom of the chart pattern makes for a good stop location. For downward breakouts, place the stop a few pennies above the price of the minor high closest to the breakout.
  • Flags For upward breakouts, the bottom of the flag or pennant works well as a stop location. For downward breakouts, use the top of the flag/pennant as a stop price.
  • Flags, high and tight See High and tight flags
  • -- G --

  • Gaps, all types Shown are the stop locations for gaps

    Gaps as support or resistance zones are not very effective. Thus, one price bar may be repulsed by a gap, but after that, price is likely to push through. If you want to play it safe: For gaps in a downtrend, place the stop above the intraday high the day before price gaps lower (a gap uses 2 price bars with the gap between the two. Place the stop above the high of the first day). For more aggressive traders, use the first day's low price instead of the high. Place the stop a few pennies above the intraday low price. The figure to the right shows these two locations as red circles on the left half of the chart. For gaps in an uptrend, do the reverse. Place the stop below the intraday low the day before the gap opens or below the intraday high (for more aggressive traders). The right half of the figure shows this setup.

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    -- H --

  • Head-and-shoulders bottoms, Head-and-shoulders complex bottoms The stop location is the same as Complex head-and-shoulders bottoms
  • Head-and-shoulders complex tops, Head-and-shoulders tops The stop location is the same as Complex head-and-shoulders tops
  • High and tight flags Use the bottom of the congestion area formed in the flag phase of the chart pattern as the stop price.
  • Horn bottoms Place a stop below the lower of the two spikes. In a surprising number of cases, price drops below the horn bottom, so this is not the most reliable chart pattern to trade. Thus, a stop placed there will help protect you when things go bad.
  • Horn tops A stop placed above the higher of the two spikes works well. Most times price will only rise that high if the trend has changed, so the location makes for a good place to put a stop.
  • -- I --

  • Inverted and ascending scallops See Ascending and inverted scallops.
  • Inverted and descending scallops See Descending and inverted scallops.
  • Inverted cup with handle See Cup with handle, inverted
  • Inverted roof Upward breakouts: Place a stop below the lowest valley in the chart pattern. During a throwback, price tends to drop near the pattern's low before rebounding. If price continues lower, then the trend has changed. For downward breakouts, within a week or so of the breakout, price may poke out the top of the chart pattern before making it's first real drop. Thus, locating a stop is more difficult. Certainly, a stop placed slightly above the top of the chart pattern will work most of the time, so try that. Just be aware that you may be stopped out before the real downturn begins.
  • Island, long See Long island
  • Island reversal Upward breakouts: Place a stop a few pennies below the price bar on the last day of the chart pattern. The next day price gaps higher, so the location is a good place for a stop. For downward breakouts, the same situation applies. Place a stop a few pennies above the high on the last day of the chart pattern. Coupled with the gap the next day, the decline should be enough to protect your position, at least initially.
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    -- J-L --

  • Long island Upward breakouts: Place a stop a few pennies below the price bar on the last day of the chart pattern. The next day price gaps higher, so the location is a good place for a stop. For downward breakouts, the same situation applies. Place a stop a few pennies above the high on the last day of the chart pattern. Coupled with the gap the next day, the decline should be enough to protect your position, at least initially.
  • -- M-O --

  • Measured move down Upward breakouts: place a stop below the lowest valley in the chart pattern. Downward breakouts: The safest location is to place the stop above the highest peak in the corrective phase of the chart pattern. Price often retraces to the corrective phase, so the stop location is a good one. Unfortunately, it will be far from the lowest price in the chart pattern, so a volatility stop may work better.
  • Measured move up Upward breakouts: Price often retraces to the corrective phase, so a stop below the lowest valley in this portion of the chart pattern will work well. For downward breakouts, use the top of the chart pattern as the stop location.
  • -- P --

  • Pennants See Flags
  • Pipe bottoms Use the bottom of the lowest spike as the stop price.
  • Pipe tops Use the taller of the two spikes as the stop price.
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    -- Q-R --

  • Rectangle bottoms and Rectangle tops For upward breakouts, place a stop a few pennies below the bottom of the chart pattern. Throwbacks tend to drift into the body of the rectangle before price recovers. For downward breakouts, use the top of the rectangle because some pullbacks rise into the middle of the rectangle.
  • Right-angled and ascending broadening formations See Broadening formations, right-angled and ascending
  • Right-angled and descending broadening formations See Broadening formations, right-angled and descending
  • Rising wedge For upward breakouts, use the minor low closest to the breakout as the stop price. For downward breakouts, place a stop a few pennies above the price of the highest peak.
  • Roof Upward breakouts: The base of the roof is a good support zone and stop location. If price closes below the bottom of the chart pattern, then the trend has likely changed. For downward breakouts, use the top of the chart pattern as the price of the stop.
  • Roof, inverted See Inverted roof
  • Rounding bottoms
  • Rounding tops
  • -- S --

  • Scallops, ascending See Ascending scallops
  • Scallops, ascending and inverted See Ascending and inverted scallops.
  • Scallops, descending See Descending scallops
  • Scallops, descending and inverted See Descending and inverted scallops
  • Simple ABC Correction See Measured move down
  • Symmetrical triangles Upward breakouts: Place a stop a few pennies below two minor lows behind the breakout. Throwbacks routinely take out the minor low closest to the breakout, so go back one more (lower, that is), and use that as the stop location. For downward breakouts, use the minor high closest to the breakout as a stop price.
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    -- T --

  • Three falling peaks Use the most recent peak (the lowest of the three) in the chart pattern as the stop location. Rarely will a pullback work its way up that far, so that is a good stop location.
  • Three rising valleys A few pennies below the most recent valley (the highest of the three) is a good location for a stop. It is rare that a throwback drifts that low.
  • Triangles, ascending See Ascending triangles
  • Triangles, descending See Descending triangles
  • Triangles, symmetrical See Symmetrical triangles
  • Triple bottoms Place a stop a few pennies below the most recent low. Quad bottoms are rare so if price does drop to the stop price, it may mean the trend has changed and it is time to exit.
  • Triple tops Place a stop a few pennies above the highest of the three peaks. I have seen a pullback reach the peaks before tumbling, so a stop just above the chart pattern's high, will protect against such an event.
  • -- U --

  • Ugly double bottoms A stop below the higher of the two valleys will work often. This assumes the ugly double bottom chart pattern has confirmed (price has closed above the highest peak between the two bottoms). If you are entering before confirmation, then use the lower of the two valleys (that is, place the stop a few pennies below the first valley).
  • -- V-Z --

  • Wedge, ascending broadening See Ascending Broadening wedge
  • Wedge, descending broadening See Descending Broadening wedge
  • Wedge, falling See Falling wedge
  • Wedge, rising See Rising wedge

-- 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. Thieves broke into the police station and stole the toilets. Now the police have nowhere to go.