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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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Bulkowski's Inverted Roof

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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.

The inverted roof chart pattern is one I discovered in early 2005. The name is based on its complement, the roof chart pattern. I found 200 inverted roofs in 500 stocks from July 1991 to July 1996 and in 465 stocks from January 2005 to January 2007.

Inverted roof chart pattern
Inverted Roof Chart Pattern

 

Important Bull Market Results for the Inverted Roof

Overall rank for up/down breakouts: 24 out of 25; 13 out of 21 (1 is best)
Break even failure rate for up/down breakouts: 19%; 10%
Average rise/decline: 19%; 17%
Throwback/pullback rate: 65%; 56%
Percentage meeting price target for up/down breakouts: 71%; 73%

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

Inverted Roof Identification Guidelines

CharacteristicDiscussion
Price trendCan be any direction leading to the pattern.
ShapeHas a horizontal or near horizontal top with a V-shaped bottom, making the entire structure look like the bottom half of a diamond. See the above figure.
UptrendThe best performing inverted roof chart patterns appear after a sharp rise like you sometimes see in diamond top chart patterns.
SymmetricalThe two halves of the inverted roof chart pattern should appear symmetrical. Allow variations, but most look like a V with price touching the horizontal top often.
Head-and-shoulders bottomMake sure the pattern isn't a head-and-shoulders bottom or a complex head-and-shoulders bottom.
ConfirmationThe pattern confirms as valid when price closes outside the chart pattern trendline boundary.

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Inverted Roof Trading Tips

Trading TacticExplanation
Measure ruleCompute the height (the difference between the inverted roof's high, B, and the low, A) and then multiply it by the above “percentage meeting price target.” Add or subtract the result from the breakout price to get a target. The Measure Rule figure to the right shows the measure for an upward breakout.
UptrendsA strong downtrend usually follows a sharp uptrend, returning price back to (or slightly above) the launch point. The Price Trend figure to the right shows an example.
ConfirmationWait for confirmation before placing a trade because the breakout can be upward or downward.
Throwbacks and PullbacksThrowbacks and pullbacks hurt performance.
HeightTall patterns outperform short ones. Measure the height from horizontal top (B in the Measure Rule figure to the upper right), to the lowest low in the chart pattern (A) and divide it by the breakout price. Height to breakout price values over 8.84% (upward breakouts) or over 9.33% (downward breakouts) are considered tall.
Inverted roof chart pattern measure rule
The Measure Rule

Inverted roof chart pattern price trend

Price Trend

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Inverted Roof Example

Inverted roof chart pattern example

The above figure shows an example of an inverted roof chart pattern. Price begins the climb into the inverted roof at A and overshoots the top of the pattern (which happens about 15% of the time). The breakout from the inverted roof is downward and price returns to the launch price at B. A pullback ensues, sending price back to the breakout and it moves sideways from then on.

-- Thomas Bulkowski

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Other Inverted Roof Examples

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. Why do black widow spiders kill their males after mating? To stop the snoring before it starts.