Bulkowski's Alcon Trading Quiz

Compare ascending scallop 1 and 2. Notice any difference? For scallop 2, the stock tops out (A) at a price not much higher than on the right side of the pattern.

Answer 1 (nearly even price ends): It signals a trend change, but it's not a guarantee. However, you can see price already moving lower (after A).

Answer 2 (buy?): Sell an existing holding for short-term traders or sell short.

Answer 3 (target?): Assume price drops below the bottom of the scallop, confirming a downward breakout. The measure rule is the height of the pattern applied to the breakout. The high is at 80.48 directly below point A in the chart. The low is 73.70 for a height of 6.78. Since the measure rule works 62% of the time in a bull market, multiply the height by 62% (4.20) and subtract it from the lowest low for a target of 69.50, near the price level of point B.

Answer 4 (stop?): Volatility is high at 2.08, so you'd want to put your stop higher than 2.08 above the breakout (the lowest low, for a downward breakout). I show it as a horizontal red line near the scallop bowl low. If this is too close, then you can always raise the stop to the left scallop rim high at 79.17. Price reached a low above the highest volume spike on the chart, at a price of 64, below the target of 69.50. If you sold short at the scallop low and covered at the low on the chart, you would make 13%. That's for a perfect trade without commissions. Chances are you'd be lucky to get away with half that profit. If you failed to cover, you can see what happened to price.