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. His four books, including the best selling Encyclopedia of Chart Patterns, have been translated into seven languages. He may be reached at

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Bulkowski's Big W

Market

Industrials (^DJI):

Transports (^DJT):

Utilities (^DJU):

Nasdaq (^IXIC):

S&P 500 (^GSPC):

As of 05/16/2012

12,599 -33.45 -0.3%

5,101 -6.43 -0.1%

467 -0.66 -0.1%

2,874 -19.72 -0.7%

1,325 -5.86 -0.4%

YTD

3.1%

1.6%

0.6%

10.3%

5.3%

Tom's Targets Overview: 05/14/2012

13,300 or 12,500 by 06/01/2012

5,400 or 5,000 by 06/01/2012

480 or 460 by 06/01/2012

3,000 or 2,850 by 06/01/2012

1,420 or 1,310 by 06/01/2012

Test Portfolios and CPI

Indus. strength: 11.1%

Mutt Losers: -4.2%

Mutt Winners: 2.3%

Wilder RSI: -2.5%

CPI:

on 05/02/2012

A big W is a double bottom with tall sides. Price often confirms the double bottom and approaches the height of the left side trend start before retracing and forming a handle. Once price completes the handle, the rise resumes.

Important Results

Identification Guidelines

Trading Tips

Example

Other Examples

Important Bull Market Results

Overall performance rank for up/down breakout’s (1 is best): not ranked

Break even failure rate for up/down breakouts: 11%; 16%

Average rise/decline: 31%; 14%

Throwback/pullback rate: 32%, 13%

Percentage meeting price target for up/down breakouts: 42%, 12%

The above results are preliminary, based on a sample of 202 qualifying patterns (151 with upward breakouts, 51 with downward breakouts). The percentage meeting price target for down breakouts showed that just 6 hit the target and the pullback rate used just 26 samples. The numbers are likely to change.

See the glossary for definitions.

Big W Identification Guidelines

Characteristic	Discussion
Price trend	Can be any direction leading to the pattern. Best performance comes from patterns with price trending upward leading to the pattern.
Shape	A big W shape with twin bottoms and tall sides.
Reversal pattern	Look for a double bottom reversal pattern at the base of the big W.
Tall sides	The best performing big W chart patterns have tall, straight declines leading to the bottom of the big W.
Left side decline	The decline leading to the first bottom should be at least 1.5 times the rise between the two bottoms for best performance.
Double bottom	The double bottom should have twin bottoms with lows less than 4% apart.
Rise between bottoms	The rise between the valleys of the double bottom is 10% to 20% or more.
Volume	Recedes 60% to 63% of the time for up/down breakouts respectively.
Breakout	Look for an upward breakout. That’s when price rises above the right side of the big W.
Confirmation	The pattern confirms as a valid one when price closes above the highest peak between the double bottoms.

Big W Trading Tips

Consult the associated figure on the right.

Trading Tactic	Explanation
Measure rule	Compute the height from the highest peak (usually the left side of the big W, point A in this example) to the lowest valley (B) and then multiply it by the above “percentage meeting price target.” Add the result to the right side of the big W (upward breakouts, C) or subtract it from the lowest valley (downward breakouts, B). The result is the target price. The link to the left gives more information about the measure rule.
Breakout	Upward breakouts occur when price closes above the right side of the big W (C). Downward breakouts occur when price closes below the lowest valley in the big W (B).
Stall	For swing traders, buy at the double bottom low (E) and ride price upward to confirmation of the double bottom (the high between the two bottoms, D). Price often pauses there. If price drops below the low of the second bottom (E), exit the position immediately. If price confirms the double bottom, expect a rise approaching the left side high (A).
Position traders	Wait for confirmation of the double bottom before taking a position and be prepared to sell as the stock nears the price of the left side high (the price at C approaches the price at A).
Left side high	The right side high of the big W (C) reaches the price at the start of the pattern (A) 46% of the time.

Big W measure rule

The Measure Rule

Big W Example

A big W chart pattern example

The above figure shows an example of a big W chart pattern. Price begins its decline at A and reaches a low at B in just a few months. Price bounces and retraces to form a second low in September (C). The Eve & Adam double bottom confirms as a valid chart pattern when price closes above the confirmation line, as shown. A pretty symmetrical triangle appears during October.

-- Thomas Bulkowski

Other Big W Examples

A big W trade in Hecla Mining.