As of 12/20/2024   Indus: 42,840 +498.02 +1.2%     Trans: 15,892 +32.54 +0.2%     Utils: 986 +14.76 +1.5%     Nasdaq: 19,573 +199.83 +1.0%     S&P 500: 5,931 +63.77 +1.1%	YTD  +13.7%   0.0%    +11.9%    +30.4%    +24.3%	Targets    Overview: 12/12/2024     44,200 or 41,750 by 01/01/2025   16,100 or 17,700 by 01/01/2025   1,050 or 975 by 01/01/2025   20,500 or 19,300 by 01/01/2025   6,100 or 5,775 by 01/01/2025
Chart Pattern Indicator: on 12/5/24

As of 12/20/2024   Indus: 42,840 +498.02 +1.2%     Trans: 15,892 +32.54 +0.2%     Utils: 986 +14.76 +1.5%     Nasdaq: 19,573 +199.83 +1.0%     S&P 500: 5,931 +63.77 +1.1%	YTD  +13.7%   0.0%    +11.9%    +30.4%    +24.3%
Targets    Overview: 12/12/2024     44,200 or 41,750 by 01/01/2025   16,100 or 17,700 by 01/01/2025   1,050 or 975 by 01/01/2025   20,500 or 19,300 by 01/01/2025   6,100 or 5,775 by 01/01/2025
Chart Pattern Indicator: on 12/5/24

Bulkowski's Busted Pattern Setup

Chapter 8 starting on page 225 of Getting Started in Chart Patterns, Second Edition, (pictured on the left) discusses busted chart patterns. It has a wealth of information including updated performance statistics for 18 busted chart patterns and how to trade them.

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Quick note: Busted patterns work for both stock and option plays, so I repeated the trading setup (it appears in both Options setups and Stocks setups).

What Is A Busted Chart Pattern?

A busted pattern occurs when price breaks out in one direction and moves less than 10% away from the breakout price, reverses, and then breaks out in the new direction. After the pattern busts, price tends to trend in the new direction, setting up a profitable trade. The new trend is often a powerful one, so it lasts longer than usual and is less likely to be fake.

If you search for busted patterns and trade the new breakout direction, you can have a higher success rate (more winning trades that make more money) than if you trade the initial breakout of a chart pattern. Of course anything can happen, so use stops to protect your position.

Busted Symmetrical Triangle

I show a busted symmetrical triangle in the chart. The breakout is upward when price rises above the top trendline. Then, price busts the pattern when it reverses and plunges downward, closing below (outside of) the bottom trendline.

With some patterns, the breakout occurs well before the end of the pattern so that when it busts, it is clear that price has zoomed out the other side of the pattern. The situation shown in the chart is difficult to separate from a throwback. Sometimes it is best to wait for price to close below the chart pattern low before placing the trade. In this example, you would want to short the stock when it becomes clear that price is making a determined move down. Often you can tell that when price closes below a prior minor low.

Symmetrical triangles are also notorious for busting out in both directions, sometimes multiple times. Price breaks out upward then downward, then upward and finally moves off horizontally. Ascending and descending triangles make safer plays than symmetrical triangles.

-- Thomas Bulkowski

More

See Also

• Links to busted patterns. This gives introductory information on busted patterns and links to them.
• Busted ascending triangles. A way to play a downward breakout!
• Busted triple tops. What are they?
• Busted triple bottoms. The complement to a triple top.
• Information about busted double top and bottoms.

It's lonely at the top, but you eat better.