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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
Getting Started in Chart Patterns, Second Edition book.
Trading Basics: Evolution of a Trader book.
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Bulkowski's Inverted and Descending Scallops

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Busted
Patterns
Candles Chart
Patterns
Event
Patterns
Small Patterns
Market
Industrials (^DJI):
Transports (^DJT):
Utilities (^DJU):
Nasdaq (^IXIC):
S&P500 (^GSPC):
As of 11/22/2017
23,526 -64.65 -0.3%
9,627 11.94 0.1%
758 -0.24 0.0%
6,867 4.88 0.1%
2,597 -1.95 -0.1%
YTD
19.0%
6.4%
14.9%
27.6%
16.0%
Tom's Targets    Overview: 11/14/2017
23,700 or 22,800 by 12/01/2017
9,300 or 9,800 by 12/01/2017
800 or 750 by 12/01/2017
7,000 or 6,500 by 12/01/2017
2,625 or 2,540 by 12/01/2017

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.

For more information on this pattern, read Encyclopedia of Chart Patterns Second EditionEncyclopedia of Chart Patterns 2nd Edition book., pictured on the right, pages 670 to 683. 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.

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 scallop chart pattern
Inverted and Descending Scallop

 

Important Bull Market Results for Inverted and Descending Scallops

Overall performance rank (1 is best): 6 out of 21
Break even failure rate: 10%
Average decline: 18%
Pullback rate: 58%
Percentage meeting price target: 38%

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

Inverted and Descending Scallop Identification Guidelines

CharacteristicDiscussion
Price trendDownward leading to the scallop or at bearish turning points.
ShapeLooks line an inverted J.
Smooth topLook for a rounded top, not V-shaped.
Down moveFrom 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).
EndsBoth the scallop start and end should form at price turning points.
ProportionThe height and width of the scallop should look proportional.
ConfirmationThe scallop confirms as valid when price closes below the lowest valley in the pattern without first closing above the scallop's peak.
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Inverted and Descending Scallop Trading Tips

Trading TacticExplanation
Measure ruleCompute 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.
ShortShort the stock when price closes below the lowest valley in the pattern (C in the Measure Rule figure to the right).
CoverIf price retraces (rises) 67% of the decline from B to C in the Measure Rule figure to the right, then cover the short.
Volume trendScallops with a falling volume trend perform best.
ConfirmationWait for confirmation before placing a trade.
HeightTall scallops perform better than short ones.
TrendScallops get narrower and shorter the lower they appear in a price trend.
PullbacksPullbacks hurt performance.
Inverted and descending scallops chart pattern measure rule
The Measure Rule
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Inverted and Descending Scallop Example

Inverted and descending scallop chart pattern 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.

-- Thomas Bulkowski

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See Also

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. All computers wait at the same speed.