Bulkowski's Inverted and Descending Scallops

As of 03/27/2020

Indus: 21,637 -915.39 -4.1%

Trans: 7,699 -346.29 -4.3%

Utils: 759 +1.01 +0.1%

Nasdaq: 7,502 -295.16 -3.8%

S&P 500: 2,541 -88.60 -3.4%

YTD

-24.2%

-29.4%

-13.7%

-16.4%

-21.3%

Targets Overview: 03/15/2020

19,000 or 25,600 by 04/15/2020

6,700 or 9,000 by 04/15/2020

600 or 800 by 04/15/2020

7,000 or 8,400 by 04/15/2020

2,300 or 2,900 by 04/15/2020

CPI (updated daily): Arrows

on 3/27/20

As of 03/27/2020

Indus: 21,637 -915.39 -4.1%

Trans: 7,699 -346.29 -4.3%

Utils: 759 +1.01 +0.1%

Nasdaq: 7,502 -295.16 -3.8%

S&P 500: 2,541 -88.60 -3.4%

YTD

-24.2%

-29.4%

-13.7%

-16.4%

-21.3%

Targets Overview: 03/15/2020

19,000 or 25,600 by 04/15/2020

6,700 or 9,000 by 04/15/2020

600 or 800 by 04/15/2020

7,000 or 8,400 by 04/15/2020

2,300 or 2,900 by 04/15/2020

CPI (updated daily): Arrows

on 3/27/20

Bulkowski's Inverted and Descending Scallops

For more information on this pattern, read Encyclopedia of Chart Patterns

Encyclopedia of Chart Patterns 2nd Edition book.

, pictured on the right. The book 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.

Inverted and descending scallops are robust performers in both bull and bear markets (slightly better in a bear market). Once the downward trend ends - if you can tell when that occurs - then buy and ride the new uptrend. Discovered by Thomas Bulkowski in mid 2004, but others may have found them sooner.

Inverted and Descending Scallops: Important Bull Market Results

Overall performance rank (1 is best): 11 out of 56/27 out of 53

Break even failure rate (up/down breakouts): 16%/17%

Average rise/decline: 47%/16%

Throwback/pullback rate: 58%/66%

Percentage meeting price target (up/down breakouts): 62%/29%

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

Inverted and Descending Scallops: Identification Guidelines

Characteristic	Discussion
Price trend	Usually downward leading to the scallop or at bearish turning points.
Shape	Looks line an inverted J.
Smooth top	Look for a rounded top, not V-shaped, but be flexible.
Down move	From the start of the pattern (point A in the above chart) to its high (B) averages 55% of the following down move from highest peak (B) to scallop end (C, the lowest valley).
Ends	Both the scallop start and end should form at price turning points.
Proportion	The height and width of the scallop should look proportional.
Confirmation	The scallop confirms as valid when price closes below the lowest valley in the pattern without first closing above the scallop's peak.

Inverted and Descending Scallops: Trading Tips

Trading Tactic	Explanation
Measure rule	Compute the height from highest peak (point B in the Measure Rule chart to the right) to lowest valley (C) then multiply it by the above 'percentage meeting price target.' Subtract the result from the lowest valley in the pattern (C) to get a price target for a downward breakout. Add the height to the top of the pattern for an upward breakout.
Short	For downward breakouts, short the stock when price closes below the lowest valley in the pattern (C in the Measure Rule figure to the right).
Cover	If price retraces (rises) 67% of the decline from B to C in the Measure Rule figure to the right, then cover the short.
Volume trend	Scallops with upward breakouts and a rising volume trend perform best.
Confirmation	Wait for confirmation before placing a trade.
Height	Tall scallops perform better than short ones.
Trend	Scallops get narrower and shorter the lower they appear in a price trend.
Throwbacks	Throwbacks hurt performance.

Inverted and descending scallops chart pattern measure rule

The Measure Rule

Inverted and Descending Scallops: Example

The above figure shows an example of an inverted and descending scallop chart pattern. Point A begins the inverted scallop pattern and price peaks at B and then trends down to C, the end of the scallop. This one forms a handle, D, and that is quite common. Price resumes the downtrend after the handle completes.