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Written by and copyright © 2005-2013 by Thomas N. Bulkowski. All rights reserved.
Do perfectly shaped chart
patterns perform better or worse than ugly ones? In a test of two chart pattern
types, the uglier patterns outperformed the
well-shaped ones.
Ugly Pattern Performance: Detailed Results
I looked at double bottoms
and double tops to determine whether ugly (uneven) tops or bottoms performed better
than those with even peaks or valleys.
Here's what I found.
| Peak to peak price difference => | 0-1% | 1-2% | 2-3% | 3-4% | 4-5% |
| Double tops | 15.5% (276) | 17.3% (320) | 19.3% (57) | 21.5% (21) | 29.9% (17) |
| Double bottoms | 31.5% (304) | 32.0% (378) | 33.6% (277) | 33.3% (232) | 42.8% (73) |
Numbers in parentheses are
samples used in the test and the percentages are the average move post breakout.
Double bottoms have the most samples. When
the valleys are within 0 to 1% in price from each other, the rise averages 31.5%.
When the valleys are 4 to 5% apart in price,
the rise averages 42.8%. Thus, the uglier the chart pattern, the better the
performance.
Ugly Pattern Performance: Definitions
I measured the
rise or fall from the breakout price to the ultimate high or low. A breakout occurs
when price climbs above the highest high
between the double bottoms, or below the lowest low between the double tops. The
ultimate high is the highest high before
price tumbles at least 20%. The ultimate low is the lowest low before price rises
at least 20%. In the test, I used 1,275
stocks covering 7/1991 to 3/2006. Not all stocks covered the entire period and only
qualifying double tops and bottoms were
used. I found 2,239 double top or bottom patterns, but not all of them had usable
data (the ultimate high or low wasn't
found yet because price hadn't reversed).
-- Thomas Bulkowski
Copyright © 2005-2013 by Thomas N. Bulkowski. All rights reserved. Never trim your moustache before applying Chapstick.
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