As of 04/23/2024
Indus: 38,504 +263.71 +0.7%
Trans: 15,436 +212.01 +1.4%
Utils: 886 +2.63 +0.3%
Nasdaq: 15,697 +245.33 +1.6%
S&P 500: 5,071 +59.95 +1.2%
|
YTD
+2.2%
-2.9%
+0.5%
+4.6%
+6.3%
|
 39,800 or 37,150 by 05/01/202416,200 or 15,000 by 05/01/2024885 or 850 by 05/01/202416,700 or 15,800 by 05/01/20245,250 or 5,025 by 05/01/2024 |
As of 04/23/2024
Indus: 38,504 +263.71 +0.7%
Trans: 15,436 +212.01 +1.4%
Utils: 886 +2.63 +0.3%
Nasdaq: 15,697 +245.33 +1.6%
S&P 500: 5,071 +59.95 +1.2%
|
YTD
+2.2%
-2.9%
+0.5%
+4.6%
+6.3%
| |
|
39,800 or 37,150 by 05/01/202416,200 or 15,000 by 05/01/2024885 or 850 by 05/01/202416,700 or 15,800 by 05/01/20245,250 or 5,025 by 05/01/2024 | ||
Initial release: 10/22/2021. In Table 5, the Roof pattern near table bottom should have been excluded due to low sample counts but wasn't. I removed the 4 cells of data but did not adjust the rankings (was: annualized rank 7, expectancy rank 12) on the 4 tables. Ranks above 7 and 12 will be off by 1. Fixed: 12/30/21.
The idea behind pattern pairs is to pick a chart pattern type (like broadening bottom with upward breakouts) to buy and another to sell (like double tops). You buy the upward breakout from the broadening bottom, hold for a few years, and sell when a double top appears and breaks out downward. Along the way, you give price a chance to rise far enough to overcome those trades which are stopped out for a loss. This is a trend-following strategy.
In this article, when I refer to "scallops", I mean ascending scallops.
The figure illustrates the idea for trading pattern pairs, where price is the red line and the boxes are chart patterns. This articles assumes you buy either an upward breakout from a ascending scallop or a busted scallop (price breaks out downward, drops no more than 10%, reverses, and closes above the top of the broadening bottom). Buy as price rises above the top of the scallop.
On the sale side, you can sell the first bearish chart pattern which comes along, or you can wait for your favorite bearish chart pattern to appear and sell then.
The best pattern pairs are shown below in the list, based on annualized gain (annualized because the hold time is often years, in parenthesis).
The following list shows the expected performance of chart pattern pairs, ranked by their expectancy. Expectancy is a way of gauging winning and losing trades and how much money you might make trading a pattern pair. I put the expected profit per trade, per share, in parenthesis.
To improve performance, try these tips.
The databases I built over several decades doesn't identify every chart pattern. There may be plenty of double tops over the years, for example, that I didn't catalog on the way to the one I did catalog. So buying an upward breakout from a broadening bottom and selling at the double top I cataloged would be different than choosing to sell a different double top. However, the following analysis does give a real-world flavor for how well you might do trading chart patterns if you follow the pattern pair strategy.
Here's what I used in my analysis.
I used the following 43 chart patterns in the analysis, but some only applied if they were busted.
I used a stop loss order set a penny below the bottom of the scallop. Price on the way down may have gapped below the stop price (for the sale price), so I used the lower of the stop price or the opening price on the day of sale).
For trailing stops, I removed the stop loss order and used a trailing stop set at 10%, 15%, 20%, or 25% below a peak, never lowering the stop value, but raising it if a higher peak came along during the trade.
In Table 1, I calculated the percentage net gain (the average of gains and losses) when using various trailing stop loss amounts (10%, 15%, 20%, and 25%) for all tested chart patterns according to the busted/non-busted buy/sell configuration. In parenthesis is the size of the average loss so I could detail how losses changed with various stop loss orders.
For example, if I tested non-busted ascending scallops and sold various non-busted patterns (broadening bottoms, broadening tops, head-and-shoulders tops, and so on), I made an average of 59% ("Stop Loss Only" column) after having a stop loss order in place. Losses averaged 20%. Replacing the stop loss with a 10% trailing stop cut the gain to 5% but also trimmed the average loss to 5%. Using a 25% trailing stop allowed me to keep more money, 19%, but losses climbed to 14%. If I didn't use any type of stop, the gain averaged 110% with losses averaging 33%.
The results show that:
| Table 1: Various Trailing Stop Settings: Net Profit and (Average Loss) | ||||||
|---|---|---|---|---|---|---|
| Data | 10% | 15% | 20% | 25% | Stop Loss Only | No Stop |
| Non-busted buys, non-busted sales | 5% (-5%) | 9% (-8%) | 14% (-11%) | 19% (-14%) | 59% (-20%) | 110% (-33%) |
| Busted buys, non-busted sales | 1% (-6%) | 3% (-9%) | 2% (-9%) | 6% (-13%) | 35% (-14%) | 109% (-26%) |
| Non-busted buys, busted sales | 4% (-5%) | 9% (-8%) | 14% (-10%) | 17% (-14%) | 58% (-19%) | 114% (-30%) |
| Busted buys, busted sales | 0% (-6%) | 4% (-10%) | 4% (-9%) | 9% (-13%) | 47% (-13%) | 121% (-22%) |
Table 2 shows what I found when comparing the performance of non-busted patterns (both buy and sell) with busted and non-busted chart patterns. In 22 or 31 contests (22 or 31 different chart pattern types, depending on which apply), I compared the three combinations of busted and non-busted buy and sell signals to non-busted buy and sell signals. The table below shows the percentage of time the busted combination beat the non-busted combination in the contests.
For example, I found that busted patterns won half (45%) the 22 contests when trading using a busted pattern for the sale. The worst performance came from trading busted patterns. That configuration won only 3 of 22 contests (14%).
Trading using a busted chart pattern often results in worse performance than using non-busted patterns (at least for ascending scallops as the buy signal).
| Table 2: Busted or Non-Busted Contest Winners | ||
|---|---|---|
| Sell Non-Busted Pattern | Sell Busted Pattern | |
| Buy non-busted pattern | N/A (benchmark) | 45% |
| Buy busted pattern | 16% | 14% |
Table 3 shows statistics I collected for scallops using the trading rules described above and shown in the figure. A stop loss order was used and priced a penny below the bottom of the scallop (after buying).
For example, if you were to buy the upward breakout from an ascending scallop chart pattern and hold it until you encountered a broadening bottom (the first chart pattern listed in the table), but one with a downward breakout, you'd net an average of 65% on the 306 (93 winners, 213 losers) trades. That's an average of 267% on your winners, 23% average loss on your losers, and holding onto the position an average of 3.3 years. You'd find that only 30% of the trades made money but you'd gain an average of 20% per year. If you removed the stop loss order and just held on until the broadening bottom with a downward breakout appeared, you'd make an average of 115% per trade.
The expectancy averages $1.38 per share per trade which ranks 67th where 1 is the best value.
Notes: All of the above numbers appear in the table except for the average hold time. The rank is based on the net gain for all four performance tables (tables 3 to 6) shown below. Trades with sample counts below 30 are not ranked.
| Table 3: Statistics for Ascending Scallops | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Sell Pattern | Average Win | Average Loss | Net | Annualized Net | Rank | No Stop Net | Win/Loss Samples | Win Loss | Average Expectancy | Expectancy Rank |
| Broadening bottom | 267% | -23% | 65% | 20% | 29 | 115% | 93/213 | 30% | $1.38 | 54 |
| Broadening top | 283% | -20% | 86% | 34% | 9 | 146% | 196/366 | 35% | $10.52 | 18 |
| Broadening formation, right-angled and ascending | 132% | -21% | 28% | 14% | 46 | 59% | 97/211 | 31% | -$1.20 | 68 |
| Broadening formation, right-angled and descending | 147% | -20% | 37% | 14% | 46 | 73% | 67/131 | 34% | $5.75 | 30 |
| Broadening wedge, ascending | 171% | -18% | 64% | 27% | 23 | 107% | 122/160 | 43% | $3.36 | 36 |
| Broadening wedge, descending | 129% | -21% | 20% | 9% | 60 | 41% | 49/133 | 27% | -$1.09 | 67 |
| Bump-and-run reversal top | 123% | -18% | 44% | 23% | 26 | 83% | 419/527 | 44% | $4.38 | 32 |
| Diamond bottom | 187% | -21% | 48% | 20% | 29 | 67% | 27/55 | 33% | $2.15 | 50 |
| Diamond top | 127% | -20% | 36% | 17% | 38 | 90% | 97/157 | 38% | $2.72 | 41 |
| Adam & Adam double top | 403% | -19% | 115% | 32% | 12 | 216% | 369/785 | 32% | $10.96 | 17 |
| Adam & Eve double top | 397% | -21% | 113% | 34% | 9 | 190% | 174/372 | 32% | $11.91 | 14 |
| Eve & Adam double top | 303% | -20% | 91% | 27% | 23 | 167% | 205/394 | 34% | $9.23 | 19 |
| Eve & Eve double top | 340% | -20% | 100% | 41% | 8 | 185% | 262/524 | 33% | $11.64 | 16 |
| Falling wedge | 248% | -20% | 63% | 29% | 17 | 93% | 60/133 | 31% | $2.66 | 42 |
| Head-and-shoulders top | 199% | -20% | 59% | 21% | 27 | 109% | 719/1268 | 36% | $6.67 | 28 |
| Sell Pattern | Average Win | Average Loss | Net | Annualized Net | Rank | No Stop Net | Win/Loss Samples | Win Loss | Average Expectancy | Expectancy Rank |
| Head-and-shoulders, complex top | 118% | -20% | 31% | 14% | 46 | 70% | 157/267 | 37% | $2.31 | 48 |
| Rectangle top | 133% | -19% | 31% | 13% | 51 | 68% | 121/243 | 33% | $0.72 | 58 |
| Rising wedge | 150% | -20% | 40% | 16% | 40 | 82% | 234/427 | 35% | $1.49 | 53 |
| Rounding top | 154% | -22% | 22% | 8% | 61 | 57% | 116/341 | 25% | -$0.21 | 62 |
| Ascending scallop | 91% | -16% | 26% | 18% | 36 | 50% | 166/259 | 39% | $3.20 | 37 |
| Descending scallop | 210% | -21% | 52% | 19% | 32 | 95% | 558/1206 | 32% | $2.49 | 45 |
| Scallop, inverted and ascending | 204% | -21% | 58% | 19% | 32 | 118% | 47/88 | 35% | $6.74 | 26 |
| Scallop, descending and inverted | 163% | -20% | 36% | 17% | 38 | 72% | 360/804 | 31% | $2.38 | 47 |
| Triangle, ascending | 168% | -21% | 40% | 16% | 40 | 79% | 107/223 | 32% | $3.04 | 40 |
| Triangle, descending | 85% | -20% | 14% | 7% | 65 | 31% | 136/281 | 33% | -$1.26 | 70 |
| Triangle, symmetrical | 147% | -20% | 40% | 15% | 44 | 76% | 327/585 | 36% | $3.10 | 38 |
| Triple top | 277% | -22% | 77% | 25% | 25 | 144% | 506/1034 | 33% | $6.71 | 27 |
| Rectangle bottom | 231% | -22% | 40% | 15% | 44 | 56% | 67/205 | 25% | $2.62 | 43 |
| 3 falling peaks | 218% | -22% | 57% | 19% | 32 | 110% | 1010/2063 | 33% | $7.01 | 24 |
| Roof | 155% | -16% | 71% | 28% | 19 | 104% | 57/55 | 51% | $7.99 | 22 |
| Roof, inverted | 221% | -22% | 71% | 28% | 19 | 141% | 69/111 | 38% | $8.09 | 21 |
| Sell Pattern | Average Win | Average Loss | Net | Annualized Net | Rank | No Stop Net | Win/Loss Samples | Win Loss | Average Expectancy | Expectancy Rank |
The figure shows the setup for this scenario. When price busts the bearish chart pattern (downward breakout from a scallop in a bull market), buy. Sell after a downward breakout from the target chart pattern.
Table 4 shows the performance of busted ascending scallops for the entry and sales after downward breakouts from various bearish chart patterns. I used a stop loss order and priced it a penny below the bottom of the broadening bottom (after buying).
A busted scallop has a downward breakout but price drops no more than 10% before reversing and moving above the top of the scallop. Buy when price moves at least a penny above the top of the busted scallop. Sell after price drops at least a penny below the target chart pattern.
For example, buying a scallop with a busted downward breakout in a bull market (the entry price is really the higher of a penny above the top of the scallop or the opening price) and selling after the downward breakout from a broadening bottom shows winners averaging gains of 53%. Losses average 16%, for a net loss of 9%. Annualized, it's still a 9% loss. Only 19 trades occurred with a win/loss ratio of 11%, so I don't rank the low sample count trades. If you traded this as a buy-and-hold position, meaning no stops were used, you'd make 118%. Expectancy was a loss of $2.72 per share, suggesting you'll have a hard time making a profit trading these two patterns.
Avoid placing too much emphasis on patterns with fewer than 30 trades.
| Table 4: Statistics for Busted Buys, Normal Sales | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Sell Pattern | Average Win | Average Loss | Net | Annualized Net | Rank | No Stop Net | Win/Loss Samples | Win Loss | Average Expectancy | Expectancy Rank |
| Broadening bottom | 53% | -16% | -9% | -9% | 118% | 2/17 | 11% | -$2.72 | ||
| Broadening top | 260% | -13% | 78% | 31% | 99% | 9/18 | 33% | $25.14 | ||
| Broadening formation, right-angled and ascending | 32% | -11% | 0% | -1% | 66% | 4/12 | 25% | $0.33 | ||
| Broadening formation, right-angled and descending | 151% | -18% | 16% | 11% | 48% | 2/8 | 20% | $4.01 | ||
| Broadening wedge, ascending | 44% | -14% | 1% | 1% | 32% | 4/12 | 25% | -$1.65 | ||
| Broadening wedge, descending | 18% | -16% | -14% | -8% | 108% | 1/15 | 6% | -$4.38 | ||
| Bump-and-run reversal top | 314% | -14% | 104% | 62% | 5 | 166% | 19/34 | 36% | $32.45 | 6 |
| Diamond bottom | 46% | -16% | -3% | -14% | 23% | 1/4 | 20% | -$2.27 | ||
| Diamond top | 43% | -13% | 7% | 6% | 60% | 8/15 | 35% | $0.40 | ||
| Adam & Adam double top | 129% | -12% | 13% | 8% | 61 | 132% | 13/61 | 18% | $1.99 | 51 |
| Adam & Eve double top | 61% | -15% | -2% | -1% | 76 | 100% | 6/28 | 18% | -$0.34 | 65 |
| Eve & Adam double top | 449% | -13% | 147% | 67% | 4 | 253% | 17/32 | 35% | $39.67 | 4 |
| Eve & Eve double top | 858% | -13% | 186% | 108% | 1 | 239% | 13/44 | 23% | $62.92 | 3 |
| Falling wedge | 39% | -12% | -5% | -5% | -6% | 1/7 | 13% | -$1.95 | ||
| Head-and-shoulders top | 66% | -13% | 2% | 1% | 73 | 95% | 25/107 | 19% | $1.32 | 56 |
| Sell Pattern | Average Win | Average Loss | Net | Annualized Net | Rank | No Stop Net | Win/Loss Samples | Win Loss | Average Expectancy | Expectancy Rank |
| Head-and-shoulders, complex top | 39% | -15% | 11% | 5% | 32% | 11/12 | 48% | $6.64 | ||
| Rectangle top | 196% | -12% | 11% | 7% | 120% | 3/24 | 11% | $1.09 | ||
| Rising wedge | 36% | -14% | 2% | 1% | 73 | 92% | 11/24 | 31% | $2.60 | 44 |
| Rounding top | 35% | -14% | -5% | -4% | 78 | 36% | 6/26 | 19% | -$1.48 | 72 |
| Ascending scallop | 77% | -12% | 23% | 17% | 68% | 8/12 | 40% | $5.45 | ||
| Descending scallop | 53% | -16% | -6% | -5% | 79 | 77% | 13/86 | 13% | -$1.28 | 71 |
| Scallop, inverted and ascending | 828% | -12% | 251% | 101% | 350% | 5/11 | 31% | $83.83 | ||
| Scallop, descending and inverted | 164% | -15% | 9% | 8% | 61 | 48% | 12/76 | 14% | $2.22 | 49 |
| Triangle, ascending | 15% | -14% | -10% | -11% | 55% | 3/18 | 14% | -$3.24 | ||
| Triangle, descending | 45% | -15% | -5% | -2% | 16% | 3/14 | 18% | -$1.30 | ||
| Triangle, symmetrical | 335% | -14% | 49% | 29% | 17 | 123% | 13/59 | 18% | $17.42 | 9 |
| Triple top | 138% | -14% | 20% | 11% | 57 | 92% | 26/89 | 23% | $6.56 | 29 |
| Rectangle bottom | 87% | -16% | 8% | 3% | 17% | 4/13 | 24% | $5.74 | ||
| 3 falling peaks | 282% | -13% | 48% | 28% | 19 | 128% | 45/171 | 21% | $16.27 | 11 |
| Roof | 132% | -8% | 38% | 10% | 117% | 1/2 | 33% | $4.61 | ||
| Roof, inverted | 12% | -12% | -7% | -4% | 8% | 2/7 | 22% | -$3.08 | ||
| Sell Pattern | Average Win | Average Loss | Net | Annualized Net | Rank | No Stop Net | Win/Loss Samples | Win Loss | Average Expectancy | Expectancy Rank |
The figure shows an example of how this trade unfolds.
A bullish chart pattern appears and you buy at the breakout. Continue holding until your selected chart pattern appears. The chart pattern is bullish because it has an upward breakout but then things go wrong. Price reverses. Sell when the stock dips below the bottom of the chart pattern (meaning it busts the upward breakout).
Table 5 shows the performance statistics for this setup (buying a normal scallop and selling only after a busted chart pattern). A stop loss order was used and priced a penny below the bottom of the scallop (after buying).
For example, buying a scallop with an upward breakout in a bull market and selling a busted broadening bottom shows winning trades making an average of 81%. Losing trades lost 20%, giving a net of 10%. Because the hold time is often years long, the annualized gain is just 3%, ranking the setup at 85th (where 1 is best). If you traded this without a stop, the net gain climbed to 65%. Of the stocks I looked at, I found 74 trades with 30% of them winning. Expectancy was $1.37 per share, ranking 68th where 1 is best.
Trades with fewer than 30 samples were not ranked.
| Table 5: Statistics for Normal Buy, Busted Sale | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Sell Pattern | Average Win | Average Loss | Net | Annualized Net | Rank | No Stop Net | Win/Loss Samples | Win Loss | Average Expectancy | Expectancy Rank |
| Broadening bottom | 81% | -20% | 10% | 3% | 72 | 65% | 22/52 | 30% | $1.37 | 55 |
| Broadening top | 149% | -18% | 34% | 12% | 54 | 85% | 70/155 | 31% | $4.10 | 35 |
| Broadening formation, right-angled and ascending | 177% | -21% | 40% | 13% | 51 | 80% | 30/68 | 31% | $1.12 | 57 |
| Broadening formation, right-angled and descending | 77% | -20% | 13% | 5% | 70 | 53% | 25/48 | 34% | -$0.13 | 61 |
| Broadening wedge, ascending | 120% | -24% | 24% | 11% | 57 | 105% | 11/22 | 33% | $33.52 | 5 |
| Broadening wedge, descending | 136% | -16% | 29% | 13% | 51 | 55% | 19/45 | 30% | -$0.23 | 63 |
| Bump-and-run reversal bottom | 226% | -17% | 47% | 16% | 40 | 95% | 17/47 | 27% | $0.06 | 60 |
| Cup with handle | 54% | -18% | 1% | 1% | 73 | 11% | 17/45 | 27% | -$2.18 | 75 |
| Diamond bottom | 265% | -18% | 99% | 33% | 11 | 125% | 24/34 | 41% | -$1.20 | 68 |
| Diamond top | 154% | -19% | 37% | 11% | 57 | 92% | 26/55 | 32% | $0.33 | 59 |
| Adam & Adam double bottom | 420% | -19% | 123% | 30% | 16 | 227% | 106/223 | 32% | $17.85 | 8 |
| Adam & Eve double bottom | 606% | -21% | 176% | 49% | 6 | 296% | 59/129 | 31% | $21.53 | 7 |
| Eve & Adam double bottom | 531% | -18% | 105% | 31% | 13 | 247% | 34/118 | 22% | $7.48 | 23 |
| Eve & Eve double bottom | 491% | -24% | 108% | 31% | 13 | 182% | 42/122 | 26% | $11.75 | 15 |
| Falling wedge | 190% | -17% | 55% | 18% | 36 | 102% | 38/71 | 35% | $3.05 | 39 |
| Head-and-shoulders bottom | 181% | -17% | 35% | 12% | 54 | 81% | 79/219 | 27% | $4.16 | 33 |
| Sell Pattern | Average Win | Average Loss | Net | Annualized Net | Rank | No Stop Net | Win/Loss Samples | Win Loss | Average Expectancy | Expectancy Rank |
| Head-and-shoulders complex bottom | 153% | -18% | 48% | 21% | 27 | 89% | 19/30 | 39% | -$2.35 | 76 |
| Rectangle top | 100% | -20% | 16% | 7% | 65 | 57% | 45/107 | 30% | -$1.85 | 74 |
| Rising wedge | 159% | -17% | 48% | 16% | 40 | 92% | 40/69 | 37% | -$6.03 | 80 |
| Round bottom | 28% | -19% | -6% | -2% | 77 | 29% | 10/26 | 28% | -$2.59 | 77 |
| Rounding top | 130% | -20% | -35% | 14% | 46 | 59% | 23/39 | 37% | -$3.18 | 79 |
| Ascending scallop | 55% | -16% | 11% | 7% | 65 | 31% | 107/173 | 38% | -$0.68 | 66 |
| Descending scallop | 92% | -20% | 16% | 6% | 69 | 50% | 30/65 | 32% | $4.11 | 34 |
| Scallop, inverted and ascending | 265% | -19% | 87% | 28% | 19 | 145% | 107/180 | 37% | $16.84 | 10 |
| Scallop, descending and inverted | 138% | -18% | 36% | 12% | 54 | 71% | 48/90 | 35% | $8.38 | 20 |
| Triangle, ascending | 248% | -19% | 69% | 31% | 13 | 115% | 59/121 | 33% | $5.39 | 31 |
| Triangle, descending | 121% | -21% | 20% | 8% | 61 | 55% | 34/83 | 29% | $1.73 | 52 |
| Triangle, symmetrical | 220% | -18% | 63% | 20% | 29 | 121% | 169/328 | 34% | $2.43 | 46 |
| Triple bottom | 192% | -20% | 45% | 14% | 46 | 90% | 176/404 | 30% | $6.92 | 25 |
| Rectangle bottom | 119% | -22% | 21% | 7% | 65 | 47% | 29/66 | 31% | -$1.66 | 73 |
| 3 rising valleys | 221% | -20% | 66% | 19% | 32 | 127% | 188/341 | 36% | $12.11 | 13 |
| Roof | 195% | -13% | 109% | 158% | 14/10 | 58% | ||||
| Roof, inverted | 114% | -17% | 10% | 4% | 71 | 27% | 10/39 | 20% | -$2.66 | 78 |
| Sell Pattern | Average Win | Average Loss | Net | Annualized Net | Rank | No Stop Net | Win/Loss Samples | Win Loss | Average Expectancy | Expectancy Rank |
Table 6 shows the last combination of trading statistics. It shows busted ascending scallops as the entry signal and various busted chart patterns as the exit signal. Keep in mind that some pattern combinations were rare. A stop loss order was used and priced a penny below the bottom of the scallop (after buying).
The associated figure shows the setup.
For example, buying and selling a busted scallop made nothing because no trade was profitable. Losing trades lost 20% for a net loss of 20%. Annualized, the loss was 35%. Removing stops from the trades allowed them to make 52%, far above the 20% loss when using a stop loss order. Only 7 trades were taken (too few to rank) and none of them were winners. Expectancy was a loss of $7.08 per share, meaning you'd be hard pressed to make money trading this setup.
Trades with fewer than 30 samples were not ranked.
| Table 6: Statistics for Busted Buys and Sales | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Sell Pattern | Average Win | Average Loss | Net | Annualized Net | Rank | No Stop Net | Win/Loss Samples | Win Loss | Average Expectancy | Expectancy Rank |
| Broadening bottom | none | -20% | -20% | -35% | 52% | 0/7 | 0% | -$7.08 | ||
| Broadening top | 44% | -10% | 3% | 2% | 60% | 5/17 | 23% | -$1.28 | ||
| Broadening formation, right-angled and ascending | 77% | -17% | -3% | -1% | 147% | 1/6 | 14% | -$1.11 | ||
| Broadening formation, right-angled and descending | none | -9% | -9% | -8% | 248% | 0/5 | 0% | -$1.59 | ||
| Broadening wedge, ascending | none | -22% | -22% | -46% | 654% | 0/1 | 0% | -$0.63 | ||
| Broadening wedge, descending | none | -18% | -18% | -82% | 67% | 0/3 | 0% | -$4.13 | ||
| Bump-and-run reversal bottom | 23% | -15% | -10% | -16% | 74% | 1/7 | 13% | -$2.51 | ||
| Cup with handle | none | -9% | -9% | -67% | -11% | 0/1 | 0% | -$2.27 | ||
| Diamond bottom | none | -10% | -10% | -6% | -19% | 0/4 | 0% | -$4.14 | ||
| Diamond top | 69% | -9% | 15% | 5% | 65% | 3/7 | 30% | $3.95 | ||
| Adam & Adam double bottom | 53% | -11% | -4% | -2% | 50% | 3/25 | 11% | -$1.25 | ||
| Adam & Eve double bottom | 10% | -13% | -8% | -14% | 91% | 2/8 | 20% | -$2.84 | ||
| Eve & Adam double bottom | 6% | -11% | -10% | -5% | 192% | 1/9 | 10% | -$2.26 | ||
| Eve & Eve double bottom | 45% | -12% | -7% | -7% | 136% | 1/10 | 9% | -$1.40 | ||
| Falling wedge | none | -22% | -22% | -46% | 201% | 0/1 | 0% | -$0.63 | ||
| Head-and-shoulders bottom | 72% | -17% | 7% | 3% | 42% | 6/17 | 26% | $7.85 | ||
| Sell Pattern | Average Win | Average Loss | Net | Annualized Net | Rank | No Stop Net | Win/Loss Samples | Win Loss | Average Expectancy | Expectancy Rank |
| Head-and-shoulders complex bottom | 15% | -26% | -5% | -3% | 15% | 3/3 | 50% | -$3.96 | ||
| Rectangle top | 1032% | -11% | 197% | 136% | 267% | 3/12 | 20% | $6.55 | ||
| Rising wedge | 209% | -19% | 95% | 25% | 99% | 4/4 | 50% | $20.91 | ||
| Round bottom | none | -9% | -9% | -3% | -58% | 0/1 | 0% | -$3.28 | ||
| Rounding top | 112% | -14% | 70% | 19% | 70% | 2/1 | 67% | $18.33 | ||
| Ascending scallop | 4% | -17% | -15% | -21% | 16% | 1/8 | 11% | -$3.50 | ||
| Descending scallop | none | -14% | -14% | -9% | 45% | 0/12 | 0% | -$3.77 | ||
| Scallop, inverted and ascending | 88% | -14% | 16% | 7% | 112% | 8/19 | 30% | $6.43 | ||
| Scallop, descending and inverted | 56% | -15% | -10% | -8% | 27% | 1/13 | 7% | -$2.30 | ||
| Triangle, ascending | 7% | -15% | -13% | -10% | 38% | 1/10 | 9% | -$5.21 | ||
| Triangle, descending | 45% | -13% | -8% | -11% | 80% | 1/10 | 9% | -$0.28 | ||
| Triangle, symmetrical | 22% | -14% | -6% | -5% | 79 | 49% | 9/36 | 20% | -$0.30 | 64 |
| Triple bottom | 816% | -14% | 193% | 80% | 2 | 313% | 12/36 | 25% | $68.35 | 1 |
| Rectangle bottom | 4% | -16% | -12% | -8% | 21% | 1/4 | 20% | -$4.58 | ||
| 3 rising valleys | 795% | -12% | 189% | 79% | 3 | 224% | 10/30 | 25% | $64.38 | 2 |
| Roof | none | -9% | -9% | -24% | 356% | 0/3 | 0% | -$2.87 | ||
| Roof, inverted | 65% | -11% | -1% | -1% | 7% | 1/7 | 13% | -$1.86 | ||
| Sell Pattern | Average Win | Average Loss | Net | Annualized Net | Rank | No Stop Net | Win/Loss Samples | Win Loss | Average Expectancy | Expectancy Rank |
Here are a few ideas the data suggested which may improve performance of your pattern pairs trading.
Determine the length from the trend start to the pattern's start: short term (less than 3 months), medium term (3 to 6 months) or long term (more than 6 months).
Table 7 shows the results for the four combinations of busted/non-busted trades and the resulting performance.
Buying ascending scallops with a short-term (0 to 3 months) duration from the trend start to the pattern's start results in significantly better performance than the other combinations.
| Table 7: Short (S) Medium (M) or Long (L) Trend Start and Performance | ||
|---|---|---|
| Sell Non-Busted Pattern | Sell Busted Pattern | |
| Buy non-busted pattern | S78% M27% L45% | S89% M23% L36% |
| Buy busted pattern | S73% M22% L9% | S105% M41% L14% |
I checked two moving averages at buy time, 50- and 200-day simple moving averages (not as a crossover setup). I compared the breakout price to the value of the moving average. Table 8 shows the performance of buying or selling busted or non-busted patterns when the breakout price was above (A) or below (B) the 50-day simple moving average (SMA).
Buying non-busted patterns outperformed buying busted ones (compare the two rows).
For three of four cells in the table, buying when the breakout price is above the 50-day moving average gives better performance. The one exception is trading non-busted (both buy and sell) patterns.
| Table 8: Above (A) Below (B) 50-Day Simple Moving Average | ||
|---|---|---|
| Sell Non-Busted Pattern | Sell Busted Pattern | |
| Buy non-busted pattern | A58% B74% | A58% B49% |
| Buy busted pattern | A37% B-15% | A48% B-15% |
Table 9 shows the results of using a longer moving average, the 200-day. Traders often use this as a proxy for the long-term trend.
The conclusions are the same as the prior table. Buying non-busted patterns outperformed buying busted ones (compare the two rows). Non-busted buys work best if the breakout price is below the 200-day SMA. The other three table cells show buying when the breakout price is above the 200-day moving average works best.
| Table 9: Above (A) Below (B) 200-Day Simple Moving Average | ||
|---|---|---|
| Sell Non-Busted Pattern | Sell Busted Pattern | |
| Buy non-busted pattern | A58% B68% | A59% B42% |
| Buy busted pattern | A40% B-8% | A53% B-11% |
The prior discussion assumes you buy a scallop (busted or non-busted) but sell a chart pattern of your choosing, such as a downward breakout from a head-and-shoulders top (you wait for one to appear). What if you sold the first bearish chart pattern which comes along? How would you do?
Table 10 shows the results sorted by the type of patterns involved (busted or non-busted). For example, if you buy a non-busted scallop and sell the first non-busted chart pattern which comes along, you'd make 13% on average. Annualized, you'd make 29%. This compares to a 22% annualized gain if you sell a designated pattern (like you waited for a double top before selling, which may or may not be the first bearish chart pattern to come along).
The best results come from buying a non-busted scallop and selling the first non-busted pattern which appears. That combination makes 29% annually, beating the other annualized rates.
The worst performance comes from trading busted patterns (1% per trade or 1% annually).
The bottom half of the table shows expectancy for the four combinations. Don't put much emphasis on the $2.70 value (lower right cell). There were only 12 trades involved. Only the non-busted cell (upper left) has a lot of samples, 1,017. Given the low sample counts, it's difficult to draw conclusions but it seems that trading non-busted patterns is the safe choice if you want to sell the first bearish pattern which appears.
| Table 10: Selling the First Bearish Pattern (Annualized) | ||
|---|---|---|
| Sell Non-Busted Pattern | Sell Busted Pattern | |
| Buy non-busted pattern | 13% (29% v 22%) | 6% (10% v 19%) |
| Buy busted pattern | 3% (10% v 22%) | 1% (1% v 26%) |
| Expectancy (Below) | ||
| Sell Non-Busted Pattern | Sell Busted Pattern | |
| Buy non-busted pattern | $2.50 | $0.42 |
| Buy busted pattern | $0.22 | $2.70 |
-- Thomas Bulkowski
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