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

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Bulkowski's Descending Scallops

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Industrials (^DJI):
Transports (^DJT):
Utilities (^DJU):
Nasdaq (^IXIC):
S&P 500 (^GSPC):
As of 06/14/2013
15,070 -105.90 -0.7%
6,309 -31.91 -0.5%
485 0.35 0.1%
3,424 -21.81 -0.6%
1,627 -9.63 -0.6%
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15.0%
18.9%
7.1%
13.4%
14.1%
Tom's Targets    Overview: 06/12/2013
14,700 or 15,700 by 07/01/2013
6,000 or 6,600 by 07/01/2013
455 or 500 by 07/01/2013
3,650 or 3,300 by 07/01/2013
1,750 or 1,550 by 07/01/2013

Written by and copyright © 2005-2013 by Thomas N. Bulkowski. All rights reserved.

For more information on this pattern, read Encyclopedia of Chart Patterns, Second Edition, pictured on the right, pages 654 to 669. That chapter gives a complete review of the chart pattern, including tour, identification guidelines, focus on failures, performance statistics, trading tactics, and sample trade. Below is just a sliver of the information contained in the book.

Descending scallops are chart patterns best avoided as trading vehicles. They have a high failure rate, above the maximum 20% that I consider reasonable.

 

A descending scallop chart pattern appears

Descending Scallop
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Important Bull Market Results for Descending Scallops

Overall performance rank for up/down breakouts (1 is best): 22 out of 23; 16 out of 21
Break even failure rate for up/down breakouts: 22%; 15%
Average rise/decline: 22%; 17%
Throwback/pullback rate: 62%; 55%
Percentage meeting price target for up/down breakouts: 35%; 30%

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

Descending Scallop Identification Guidelines

CharacteristicDiscussion
Price trendDownward leading to the descending scallop.
ShapeThe descending scallop looks like the backward letter J. Find two peaks with a rounded valley in between and the left peak higher than the right one.
Volume shapeDescending scallops show dome shaped volume 70% of the time.
Breakout, confirmationA close above the right peak (upward breakout) or lowest valley (downward breakout) signals a breakout, confirming the pattern as a valid one.

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Descending Scallop Trading Tips

Consult the associated figure on the right.

Trading TacticExplanation
Measure ruleCompute the height from the highest peak in the pattern (A) to the lowest valley (B) and then multiply it by the above “ percentage meeting price target.” Add it to the price of the right peak (upward breakouts, point C) or subtract it from the lowest valley (downward breakouts, point B) to get a target price (D).
Breakout volumeDescending scallops with heavy breakout volume outperform.
GapsTrade descending scallops with breakout day gaps.
HeightTrade tall patterns.
StopsFor upward breakouts, place a stop below the lowest valley (B) if it's not too far away. For downward breakouts, a stop above the right peak (C) works well.
ReversalDescending scallops acting as reversals of the prevailing price trend tend to do best.
Descending scallop chart pattern measure rule
The Measure Rule

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Descending Scallop Example

Descending scallop chart pattern example

Two descending scallop chart patterns appear in the figure above. The first one begins at point A and ends at B. The second begins at B and completes at C. In both descending scallops, the breakout is downward and that occurs when price closes below the low of the chart pattern. Notice the dome-shaped volume pattern in the AB scallop.

-- Thomas Bulkowski

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Copyright © 2005-2013 by Thomas N. Bulkowski. All rights reserved. Every morning is the dawn of a new error.