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 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
|Weekly chart||Pipes appear on the daily scale but the ones on the weekly charts perform better. Use the weekly chart.|
|Price trend||Downward leading to the pattern.|
|Shape||Twin 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.|
|Spikes||The spikes should be longer than most others in the past year. Longer is better.|
|Overlap||The 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.|
|Volume||Most pipes show above average volume on one or both spikes.|
|Obvious||The pipe should stand-alone and be obvious on the chart. The spike should clear the surrounding price action.|
|Downtrends||The best performing pipes appear at the end of downtrends.|
|Confirmation||The pattern confirms (becomes a valid pattern) when price closes above the highest high in the pattern.|
Pipe Bottom Trading Tips
|Measure rule||Compute 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,
|Buy||Buy when price closes above the higher of the two spikes.
I show that as A in the Measure Rule figure to the
|Trends||Pipes with a long-term (over 6 months) downtrend leading to the pipe perform best.|
|Uneven lows||Pipes 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
|Lower left||Pipes 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 high||Pipes within a third of the yearly high perform best.|
|Volume||Heavy left spike volume when compared to the right suggests better performance.|
|Stop||If price closes below the lower of the two spikes, then close out your position.|
The Measure Rule
Pipe Bottom 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
Other Pipe Bottom Examples
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.