As of 09/17/2021
  Indus: 34,585 -166.44 -0.5%  
  Trans: 14,268 -187.76 -1.3%  
  Utils: 904 -12.93 -1.4%  
  Nasdaq: 15,044 -137.95 -0.9%  
  S&P 500: 4,433 -40.76 -0.9%  
YTD
 +13.0%  
 +14.1%  
 +4.5%  
 +16.7%  
 +18.0%  
  Targets    Overview: 09/15/2021  
  Up arrow35,600 or 33,800 by 10/01/2021
  Up arrow15,400 or 14,000 by 10/01/2021
  Up arrow930 or 890 by 10/01/2021
  Up arrow15,600 or 14,700 by 10/01/2021
  Up arrow4,650 or 4,350 by 10/01/2021
CPI (updated daily): Arrows on 9/3/21
As of 09/17/2021
  Indus: 34,585 -166.44 -0.5%  
  Trans: 14,268 -187.76 -1.3%  
  Utils: 904 -12.93 -1.4%  
  Nasdaq: 15,044 -137.95 -0.9%  
  S&P 500: 4,433 -40.76 -0.9%  
YTD
 +13.0%  
 +14.1%  
 +4.5%  
 +16.7%  
 +18.0%  
  Targets    Overview: 09/15/2021  
  Up arrow35,600 or 33,800 by 10/01/2021
  Up arrow15,400 or 14,000 by 10/01/2021
  Up arrow930 or 890 by 10/01/2021
  Up arrow15,600 or 14,700 by 10/01/2021
  Up arrow4,650 or 4,350 by 10/01/2021
CPI (updated daily): Arrows on 9/3/21

Bulkowski on Busted Double Tops

 

Updated with new statistics on 12/28/2020.

The third edition of this book Encyclopedia of Chart PatternsEncyclopedia of Chart Patterns. has a table in most chapters discussing busted pattern performance.

$ $ $

Busted Double Tops: Summary

Busted double tops are double tops in which price breaks out downward and drops no more than 10%, turns around, and then closes above the top of the double top. The following move in the busted direction (upward) averages 38%. I'll discuss more statistics in Performance.

Busted Double Tops: Single Busts

Picture of Amazon.com (AMZN) on the daily scale.

Busted double tops come in three varieties: single busts, double busts, and three or more busts.

Single busted double tops look like the chart on the right. Price forms a double top at AB which confirms as a valid double top when price closes below the chart pattern's low, which is at C. That occurs at D.

Notice that price doesn't drop far before recovering and closing above the top of the chart pattern, at E. A close above the top of the pattern busts the double top.

Not shown, but price continues rising more than 10% above the top blue line. For your viewing pleasure, I show horizontal blue lines that represent the highest peak and lowest valley in the chart pattern.

For a single bust, look for:

  1. Price must confirm the double top by closing below the bottom of the double top (that happens at D in this example).
  2. Price must drop no more than 10% below the bottom of the double top (the difference between C and the low after D).
  3. Price rises and closes above the top of the double top (E).
  4. Price continues rising at more than 10% before either closing below the bottom of the double top or dropping by more than 20% from a peak.

The last point, 4, means the ultimate high must be at more than 10% above the top of the double top. If price fails to climb more than 10%, then it could be forming a double bust.

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Busted Double Tops: Double Busts

Picture of Sherwin-Williams (SHW) on the daily scale.

The chart of Sherwin-Williams (SHW), pictured on the daily scale, shows an example of a double busted double top.

Price forms a double top at AB, confirmed when price closes below the low between the two peaks at C. Price continues lower to D, which is less than 10% below the bottom blue line (which marks the lowest low in the chart pattern).

Price rises and eventually closes above the top blue line (the top of the chart pattern) at E. When that happens, it busts the double top for the first time. Notice that price does not rise much above the blue line (less than 10%) before reversing and dropping.

Price busts the double top a second time at F when it closes below the bottom blue line. Price continues lower, to G in this example, eventually dropping more than 10% below the bottom of the double top (not shown) and ending the search for busted turns.

For a double bust, look for these elements.

  1. Price must confirm the double top by closing below the bottom of the double top (below the blue line at C).
  2. Price must drop no more than 10% (the move to D below the bottom blue line).
  3. Price rises and closes above the top of the double top (this happens at E).
  4. Price fails to rise more than 10% above the highest peak in the double top before reversing (the rise from the blue line to the peak at E).
  5. Price closes below the lowest valley in the double top a second time (point F).
  6. Price drops more than 10% below the bottom of the chart pattern.

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Busted Double Tops: Triple Busts

Picture of Aon (AON) on the daily scale.

Triple busts are rare, but the word triple is misleading. I counted every pattern that had three or more busts.

The chart of AON (AON) is an example of a multiple bust double top.

The double top occurs at AB. When price closes below the lowest low in the pattern at C, it confirms the double top. Price in this example drops to D, which is less than 10% below the bottom blue line (which shows the lowest low in the double top).

Price recovers and rises to E, which busts the chart patterns for the first time. Price does not rise more than 10% above the top blue line before reversing and dropping to F.

F closes below the bottom blue line and busts the double top for the second time. The drop to F is less than 10% below the bottom blue line before price reverses again and closes above the top of the double top at G.

At G, price busts the double top for a third time.

In this case, the busting continues when price climbs less than 10% above the top blue line before dropping to H, which is the next close below the bottom blue line. That busts the double top again.

For a triple (or more) busted double top, look for the following:

  1. Find a double busted pattern in which price, after the second bust, fails to drop more than 10% below the bottom of the double top. That is point F in the figure.
  2. Price rises and closes above the top of the double top (point G).
  3. Price must rise more than 10% above the top blue line to stop the busted count at three. If not, then additional down and up cycles (each less than 10% from the nearest blue line) may continue, busting the double top.

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Busted Double Tops: Performance

Here's a few statistics from the book. This is for Eve & Eve double tops with downward breakouts (so they bust upward).

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Busted Double Tops: Trading

Picture of Conns (CONN) on the daily scale.

I show a chart of Conns (CONN) on the daily scale.

An Adam & Adam double top appears at A and B, confirmed at D when the stock closed below the low at C.

Price did not drop far before climbing up to E and closing above the highest peak in the pattern. That busted the stock. A buy stop placed a penny above the price at A would work well in this situation.

Price continued its strong straight-line run upward until rounding over and peaking at F. If you did not take profits near that peak, they were surrendered to the market.

The move from E to F measured (9.98 - 6.92)/6.92 or 44%.

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-- Thomas Bulkowski

See Also

 

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My novels:  Bumper's Story Head's Law

Chart Patterns: After the Buy Getting Started in Chart Patterns, Second Edition Trading Basics Fundamental Analysis and Position Trading Swing and Day Trading Encyclopedia of Candlestick Charts Trading Classic Chart Patterns

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