Bulkowski on Trading Pullbacks

This slide provides details on pullback behavior. After a downward breakout, price drops a median of 7% in 4 days before bottoming. After that, the stock returns to the breakout price, rising for 4 days (total of 8 since the breakout). Price often continues above the breakout price, rising a median of 4% but taking 26 days to peak. That's measured from the date of breakout. After the pullback rise completes, the stock drops 59% of the time.

AB is a double top with an downward breakout. It confirms as a valid double top when price closes below the valley between the two peaks (below the green line, C).

The stock drop for 3 days below the green line and then pulls back to D. After that, the stock continues lower.

After peaking at D, short the stock when price closes below the breakout price again. That happens the day after D, so enter the trade at the open the following session or near the close on the same day (when it's clear price will close below the green line).

Here's another example of a pullback in a different chart pattern. The two red lines outline a symmetrical triangle.

In this example, price breaks out downward at A but pulls back to B. After that, the stock resumes its downward move, to C.

In this case, once price peaks at B, short the stock when it closes below the breakout price. The green line shows the breakout price. The stock closes below the line the day before D, so you'd short it at the open of bar D.

This is a head-and-shoulders top chart pattern. The breakout is downward at A when price closes below the green neckline. Price takes three days before deciding to pull back to the breakout.

The pullback sucks price upward and it keeps rising. In this case, because the stock has closed above the top of the chart pattern, busting the head-and-shoulders top, you'd avoid shorting the stock. Busted patterns can lead to strong upward moves.