S&P 500 (^GSPC):
As of 06/19/2013
15,112 -206.04 -1.3%
6,283 -75.52 -1.2%
479 -11.44 -2.3%
3,443 -38.98 -1.1%
1,629 -22.88 -1.4%
or 14,700 by 07/01/2013
or 6,600 by 07/01/2013
or 470 by 07/01/2013
or 3,300 by 07/01/2013
or 1,550 by 07/01/2013
Written by and copyright © 2005-2013 by Thomas N. Bulkowski. All rights reserved.
This page serves as glossary and term definitions for methods used to measure
performance of chart, event, and candlestick patterns as described on ThePatternSite.com
The statistics shown in ThePatternSite.com are based on hundreds of
perfect trades, buying at the breakout price and selling at the highest
high before price drops. The likelihood of duplicating these results in actual
trading is zero. Instead, use the numbers as guides when
comparing one chart pattern to another, to gauge relative performance.
D to F
G to L
N to O
Q to S
U to Z
-- A --
- Actionary waves
- An Elliott wave term. Actionary waves or trend waves are those whose direction agrees with the trend of one higher degree of
which it is a part.
- Average rise or decline
- Average is the sum of the samples divided by the number of samples. The average rise/decline
measures from the breakout price to the ultimate high or
-- B --
- Bear market
- The decline in the S&P 500 Index from March 24, 2000 to October 10, 2002.
- Best 10-day performance rank (candlesticks)
- Ten days after the breakout, the price move is evaluated and displayed is the best rank from the
combinations of bull/bear markets and up/down breakout directions.
- Best average move in 10 days (candlesticks)
- Ten days after the breakout, the average price move is evaluated and shown is the best result from the
combinations of bull/bear markets and up/down breakout directions.
- Best percentage meeting price target (candlesticks)
- Usually the height of the candle pattern added to the top or subtracted from the bottom of
the candlestick pattern to get a target price. This is the best result from the combinations of bull/bear markets and up/down breakout directions.
- Break even failure rate.
- A measure of the number of patterns that fail to rise (upward breakout) or decline (downward breakout) by at least 5%.
Think of the break even failure rate as the percentage of patterns that fail to cover the cost of trading.
- When price pierces a chart pattern trendline or above the top or below the bottom of a
chart pattern. In the case of a head-and-shoulders, a neckline pierce is
used or the right shoulder armpit.
- Breakout volume
- The volume on the day of a chart pattern breakout as compared to the average of the prior 3
- Bull market
- Everything outside of the March 24, 2000 to October 10, 2002 bear market
- Busted patterns
- Price that moves less than 10% after the breakout before reversing and zipping to the other
side of the chart pattern, thus trending in a new direction. The move busts the original
-- C --
- Change after the tend ends
- After a breakout, measures the move from the end of the price trend until price
peaks or hits bottom and then moves more than
20% in a new direction. Similar to the measure for the ultimate high or
ultimate low. The
thinking here is that a trader would short an upward breakout after the upward trend ends
and then ride price lower, or go long at the end of a downtrend.
- The price at which squiggles on a chart become a valid chart pattern. Usually occurs when
price breaks out of the chart pattern trendline boundary.
- When price enters and exits a chart pattern in the same direction.
- Corrective waves
- An Elliott wave term. Corrective waves retrace prior gains or interrupt the primary trend as opposed to motive waves
that propel price movement. Corrective waves have a three wave structure or a combination of three
waves. They are more difficult to recognize because they come in many variations, such as zigzags,
flats, and triangles. They can be strung together to create complex corrections. In impulse waves
2 and 4, the configuration tends to alternate and not repeat (a zigzag as wave 2 followed by a
zigzag for wave 4) for example. If you see a flat as wave 2, a zigzag will appear as wave 4.
-- D to F --
- Price diverges from an indicator. Price will make higher highs but the indicator will
make lower highs or price will make lower lows and the indicator will make higher lows.
- An Elliott wave term. An extension is an unusually long wave, composed not of 5 subwaves but 9 (or even more, like 13).
In the 1, 3, or 5 wave sequence, only one of the waves will be an extension. Thus, if wave 1 extends,
then waves 3 and 5 will be normal length. If waves 1 and 3 are normal, then look for a long move on
- Failure rate
- See break even failure rate
- Flat base
- If you know what a rectangle chart
pattern looks like, then you know what a flat base is.
Look for a price area in which the stock touches the same value multiple times over several
weeks or months. The bottom or top of this area appears flat, hence the name. Many chart
patterns appear at a price just below the base, like a pothole in a road, before price takes
- Frequency rank (candlesticks)
- How often a candle occurs in a historical price series, based on the number of appearances in a standard database.
-- G to L --
- Occur when yesterday's high is below today's low (bull gap)
or yesterday's low is above today's high.
- Horizontal consolidation region (HCR)
- Is a congestion area marked by a flat top, flat bottom,
(or both), or prices that share a common value. A HCR means any area in which price moves
- Impulse wave
- An Elliott wave term. A five wave pattern with subwaves 5-3-5-3-5 and no overlap between waves one and four.
- Linear regression
- A method of drawing a line such that the distance between the points and the line is at a
-- M --
- Market capitalization
- The number of shares outstanding for a stock multiplied by the breakout price.
- Market trend
- The difference in the S&P 500 index from the day the chart pattern ended to the day it
- Measure rule
- A method, usually using the chart pattern height, to determine the minimum price move after
- Minor high
- A significant turning point in a stock, resulting in a peak.
- Minor low
- A significant turning point in a stock, resulting in a valley.
- Motive waves
- An Elliott wave term. Motive waves are those that propel the market as opposed to corrective ones that retrace prior gains
or interrupt the primary trend. Motive waves have a five wave structure or a combination of a five wave
structure. They obey the rules that subwave 4 will not overlap subwave 1, and subwave 3 is not the shortest
wave. Wave 2 will not retrace all of wave 1, and wave 4 will not retrace all of wave 3. Wave 3 always
travels beyond the end of wave 1. Wave 3 is often the longest wave of waves 1 and 5.
Motive waves often follow a trend channel -- two roughly parallel lines of trend. One of the subwaves,
1, 3, or 5, is usually longer (extended) than the others.
-- N to O --
- In a head-and-shoulders chart pattern, a line joining the armpits,
extended into the future to show trading signals when price crosses it.
- One higher degree
- An Elliott wave term. If you were a wave of water, then a wave of one higher degree would be the tide. On the price chart, if you were
a subwave, then a wave would be one degree higher. Think of it like a camera. If you zoom in, you see the subwaves.
When you zoom out, you see the waves.
- Overall performance rank (candlesticks)
- A ranked sum of the percentage price changes from 1, 3, 5 and 10 trading days after the breakout,
using all combinations of bull/bear markets and up/down breakout directions.
- Overall rank
- A sorted and ranked sum of the ranks of: the average rise or decline,
the break-even failure rate, and the change after the trend
ends. A rank of 1 is best.
- An Elliott wave term. When wave four moves into the territory of wave one. By definition, this cannot happen in an impulse wave.
- When price rises briefly above the start of a chart pattern.
-- P --
- Partial decline
- After a chart pattern is formed, obeying all of the identification guidelines, price drops
but does not touch the bottom trendline before staging an immediate upward breakout.
- Partial rise
- After a chart pattern is formed, obeying all of the identification guidelines, price rises
but does not touch the top trendline before staging an immediate downward breakout.
- Pattern height
- The difference between the highest high and lowest low in the chart pattern divided
by the breakout price.
- Percentage meeting price target
- Measures how often price fulfills the measure rule. The measure rule
is usually the chart pattern height added to (upward breakouts) or subtracted from
(downward breakouts) the chart pattern. The result gives a target price. The measure rule
computation varies from pattern to pattern and is usually inaccurate. Try multiplying the
measure rule height by the percentage meeting the price target to get a final target price. See
measure rule for more information.
- Performance for upward breakouts
- A rank of the rise from the breakout price to the ultimate high.
- Performance rank
- I rank each chart pattern in 3 ways: by failure rate, by average rise or decline, and by
the average decline or rise after the original trend ends (the change after the trend ends
in case you want to reverse the direction of the last trade).
The performance rank is a sum of the scores of each rank, sorted again, and ranked. A rank
of 1 is best. A rank of 3 out of 23, for example, means it ranks third out of 23 other chart
(that is, those with the same breakout direction in the same bull or bear market).
- Price breaks out downward, drops, and then returns to the breakout price within 30 days.
-- Q to S --
- Rank, candlestick
- A rank of 1 is best out of 103 candle patterns.
- When price enters and exits a chart pattern in opposite directions.
- An Elliott wave term. A subwave is the smaller price movements that make up a wave. If you were a wave of water, then a subwave would be a ripple.
If you were a camera, you would zoom in to see the subwaves and zoom out to see the waves.
- Swing measure
- For flags and pennants, measure from
the breakout to the swing high or
low (usually the nearest minor high or low after the breakout, where the short term
trend ends). I use this method because these chart patterns are small and many
suggest that they appear midway in a price trend. Gaps,
measured moves, and some
event patterns do not have a conventional breakout
or ultimate high/low, so their
performance is not ranked or the method does not apply to the standard measure
(that of finding the highest high or lowest low before a 20% trend change).
-- T --
- Tested performance (candlesticks)
- How the candlestick actually behaved, found through testing. See Theoretical performance.
- Theoretical performance (candlesticks)
- How the candlestick is supposed to behave, in theory. See Tested performance.
- Price breaks out upward, climbs, and then returns to the breakout price within 30 days.
- Throwback/pullback rate
- The percentage of stocks that throw back or pull back to the breakout price after the
- Occurs when price breaks out in one direction, moves less than 10% before reversing
trend and moving in the new direction by either 20% or closing on the side opposite the
- Trend start
- Where the price trend begins, as measured from a major price turning point. To determine
the trend start, look backward in time for the lowest low followed by a rise of at least 20%,
or the highest high followed by a decline of at least 20%. Those turning points, the lowest low
or highest high, represent where the trend starts. Whether to search for the lowest low or
highest high, I use whichever drops below or rises above the bottom/top of the chart pattern
-- U to Z --
- Ultimate high
- The highest peak before price declines by at least 20%, measured from the high to the
close. If the stock did not have a 20% move before the end of data, then the highest peak was
used as the measure. The search for the ultimate high was called off if price closed below the
chart pattern’s low.
- Ultimate low
- The lowest valley before price rises at least 20%, measured from the low to the close.
If the stock did not have a 20% move before the end of data, then the lowest valley reached was
used as the measure. The search for the ultimate low was called off if price closed above the
chart pattern’s high.
- Volume trend
- Use linear regression to determine if volume trends upward or downward
from the start to end of the chart pattern.
- Yearly price range
- The difference between the highest high and lowest low of the
prior year, starting from the day before the chart pattern begins, split into thirds: highest
third, middle third, and lowest third.
-- Thomas Bulkowski
Copyright © 2005-2013 by Thomas N.
Bulkowski. All rights reserved. Three kinds of people: those who can count and those who can’t.