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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 Pipe Bottoms

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Market
Industrials (^DJI):
Transports (^DJT):
Utilities (^DJU):
Nasdaq (^IXIC):
S&P500 (^GSPC):
As of 08/28/2014
17,080 -42.44 -0.2%
8,405 -22.68 -0.3%
560 2.98 0.5%
4,558 -11.93 -0.3%
1,997 -3.38 -0.2%
YTD
3.0%
13.6%
14.2%
9.1%
8.0%
Tom's Targets    Overview: 08/14/2014
17,300 or 16,700 by 09/15/2014
8,700 or 8,000 by 09/01/2014
575 or 540 by 09/15/2014
4,600 or 4,300 by 09/01/2014
2,050 or 1,950 by 09/15/2014

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 536 to 549. 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.

Pipe bottoms are excellent performers in a bull market, second only to high and tight flags. They have a low break even failure rate and high average rise. The bad news is that they appear on the weekly scale, so the delay buying in can be costly. Nevertheless, you should wait for confirmation before trading this and other chart patterns. Discovered by Thomas Bulkowski in 1998.

Pipe bottom chart pattern
Pipe Bottom Pattern

 

Pipe Bottom Important Bull Market Results

Overall performance rank (1 is best): 2 out of 23
Break even failure rate: 5%
Average rise: 45%
Throwback rate: 44%
Percentage meeting price target: 83%

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

Pipe Bottom Identification Guidelines

CharacteristicDiscussion
Weekly chartPipes appear on the daily scale but the ones on the weekly charts perform better. Use the weekly chart.
Price trendDownward leading to the pattern.
ShapeTwin and adjacent downward spikes. On a bar chart, the two price bars look like spikes. On a candlestick chart, the candles can be any shape (from doji to Marubozu). In other words, don't let the term spike mislead you.
SpikesThe spikes should be longer than most others in the past year. Longer is better.
OverlapThe 2 weeks should have a large price overlap (66% average) but need not bottom at the same price. The bottom price variation averages 24 cents.
VolumeMost pipes show above average volume on one or both spikes.
ObviousThe pipe should stand-alone and be obvious on the chart. The spike should clear the surrounding price action.
DowntrendsThe best performing pipes appear at the end of downtrends.
ConfirmationThe pattern confirms (becomes a valid pattern) when price closes above the highest high in the pattern.

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Pipe Bottom Trading Tips

Trading TacticExplanation
Measure ruleCompute the height from the taller of the two spikes to the lower of the two (the AB distance in the Measure Rule figure to the right) then multiply by the above “percentage meeting price target.” Add the difference to the higher of the two (A) to get a price target, C.
BuyBuy when price closes above the higher of the two spikes. I show that as A in the Measure Rule figure to the right.
TrendsPipes with a long-term (over 6 months) downtrend leading to the pipe perform best.
Uneven lowsPipes with uneven lows tend to perform better than do those with spikes that bottom at the same price. The Spike figure shows an example of spikes with uneven lows (spike B is lower than spike A).
Lower leftPipes with a lower left spike bottom tend to do better post breakout. The Spike figure to the right shows an example. Left spike B is below spike A.
Yearly highPipes within a third of the yearly high perform best.
VolumeHeavy left spike volume when compared to the right suggests better performance.
StopIf price closes below the lower of the two spikes, then close out your position.
Pipe bottom measure rule
The Measure Rule

Pipe bottom spike

Spike

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Pipe Bottom Example

Pipe bottom chart pattern example

The above figure shows an example of a pipe bottom chart pattern. This pipe bottom appears as part of a retrace in an uptrend, signaling higher prices ahead. The retrace begins at A and bottoms at the pipe then price begins its recovery. Shown on the weekly scale.

-- Thomas Bulkowski

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Other Pipe Bottom Examples

See Also

Copyright © 2005-2013 by Thomas N. Bulkowski. All rights reserved. You have a drinking problem if every night you’re beginning to find your roommates’s cat more and more attractive.