As of 09/29/2022
  Indus: 29,226 -458.13 -1.5%  
  Trans: 12,258 -199.22 -1.6%  
  Utils: 906 -38.84 -4.1%  
  Nasdaq: 10,738 -314.13 -2.8%  
  S&P 500: 3,640 -78.57 -2.1%  
YTD
-19.6%  
-25.6%  
-7.6%  
-31.4%  
-23.6%  
  Targets    Overview: 09/15/2022  
  Up arrow32,000 or 29,200 by 10/15/2022
  Up arrow13,800 or 11,800 by 10/15/2022
  Up arrow990 or 900 by 10/15/2022
  Up arrow11,975 or 10,700 by 10/15/2022
  Up arrow3,800 or 3,500 by 10/15/2022
CPI (updated daily): Arrows on 9/13/22
As of 09/29/2022
  Indus: 29,226 -458.13 -1.5%  
  Trans: 12,258 -199.22 -1.6%  
  Utils: 906 -38.84 -4.1%  
  Nasdaq: 10,738 -314.13 -2.8%  
  S&P 500: 3,640 -78.57 -2.1%  
YTD
-19.6%  
-25.6%  
-7.6%  
-31.4%  
-23.6%  
  Targets    Overview: 09/15/2022  
  Up arrow32,000 or 29,200 by 10/15/2022
  Up arrow13,800 or 11,800 by 10/15/2022
  Up arrow990 or 900 by 10/15/2022
  Up arrow11,975 or 10,700 by 10/15/2022
  Up arrow3,800 or 3,500 by 10/15/2022
CPI (updated daily): Arrows on 9/13/22

Bulkowski on Pattern Pairs: Descending and Inverted Scallops

Initial release: 12/1/2021.

The idea behind pattern pairs is to pick a chart pattern type (like broadening bottoms with upward breakouts) to buy and another to sell (like double tops). You buy the upward breakout from the broadening bottom, hold for a few years, and sell when a double top appears and breaks out downward. Along the way, you give price a chance to rise far enough to overcome those trades which are stopped out for a loss. This is a trend-following strategy.

Trading Descending and Inverted Scallops: Summary

Picture of the pattern pairs.

The figure illustrates the idea for trading pattern pairs, where price is the red line and the boxes are chart patterns. This articles assumes you buy an upward breakout from either a descending and inverted scallop (DI scallop) or a busted one (price breaks out downward, drops no more than 10%, reverses, and closes above the top of the scallop). Buy as price rises above the top of the scallop.

On the sale side, you can sell the first bearish chart pattern which comes along or wait for your favorite bearish chart pattern to appear and sell then.

Here's a list of the top five performing sell signals, based on annualized gain (annualized because the hold time is often years, in parenthesis).

The following list shows the expected performance of chart pattern pairs, ranked by their expectancy. Expectancy is a way of gauging winning and losing trades and how much money you might make trading a pattern pair. I put the expected profit per trade, per share, in parenthesis.

Trading using a busted chart pattern often results in worse performance than using non-busted patterns (based on contests).

To improve performance, try these tips.

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Trading Descending and Inverted Scallops: Entry and Exit Conditions

The databases I built over several decades doesn't identify every chart pattern. There may be plenty of double tops over the years, for example, that I didn't catalog on the way to the one I did catalog. So buying an upward breakout from a descending triangle and selling at the double top I cataloged would be different than choosing to sell a different double top. However, the following analysis does give a real-world flavor for how well you might do trading chart patterns if you follow the pattern pair strategy.

Here's what I used in my analysis.

I used the following 43 chart patterns in the analysis, but some only applied if they were busted.

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Trading Descending and Inverted Scallops: Stops

I used a stop loss order set a penny below the bottom of the chart pattern. Price on the way down may have gapped below the stop price (for the sale price), so I used the lower of the stop price or the opening price on the day of sale).

For trailing stops, I removed the stop loss order and used a trailing stop set at 10%, 15%, 20%, or 25% below a peak, never lowering the stop value, but raising it if a higher peak came along during the trade.

In Table 1, I calculated the percentage net gain (the average of gains and losses) when using various trailing stop loss amounts (10%, 15%, 20%, and 25%) for all tested chart patterns according to the busted/non-busted buy/sell configuration. In parenthesis is the size of the average loss so I could detail how losses change with various stop loss orders.

For example, if I tested non-busted descending and inverted scallops and sold various non-busted patterns (ascending triangles, broadening tops, head-and-shoulders tops, and so on), I made an average of 66% ("Stop Loss Only" column) after having a stop loss order in place. Losses averaged 17%. Replacing the stop loss with a 10% trailing stop cut the gain to 5% but also trimmed the average loss to 5%. Using a 25% trailing stop allowed me to keep more money, 26%, but losses climbed to 14%. If I didn't use any type of stop, the gain averaged 137% with losses averaging 29%.

The results show that:

Table 1: Various Trailing Stop Settings: Net Profit and (Average Loss)
Data 10%  15%  20%  25%  Stop Loss 
Only
 No Stop
Non-busted buys, non-busted sales 5% (-5%)  8% (-9%)  18% (-12%)  26% (-14%)  66% (-17%)  137% (-29%) 
Busted buys, non-busted sales 5% (-6%)  9% (-7%)  19% (-10%)  23% (-13%)  54% (-15%)  114% (-32%) 
Non-busted buys, busted sales 5% (-6%)  8% (-9%)  18% (-12%)  23% (-14%)  56% (-17%)  121% (-26%) 
Busted buys, busted sales 6% (-6%)  9% (-8%)  19% (-11%)  23% (-13%)  59% (-14%)  120% (-27%) 

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Trading Descending and Inverted Scallops: Busted Patterns

Trading using a busted chart pattern often results in worse performance than using non-busted patterns.

Table 2 shows what I found when comparing the performance of non-busted patterns (both buy and sell) with busted and non-busted chart patterns. In 22 or 31 contests (22 or 31 different chart pattern types, depending on which apply), I compared the three combinations of busted and non-busted buy and sell signals to non-busted buy and sell signals. The table below shows the percentage of time the busted combination beat the non-busted combination in the contests.

For example, I found that busted patterns won 45% (or 10) of the 22 contests when trading using a busted pattern for the sale.

Table 2: Busted or Non-Busted Contest Winners
 Sell Non-Busted PatternSell Busted Pattern
Buy non-busted patternN/A (benchmark)36%
Buy busted pattern35%45%

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Trading Descending and Inverted Scallops: Non-busted Buy, Non-Busted Sale

Picture of a busted pattern pair.

Table 3 shows statistics I collected for descending and inverted scallops using the trading rules described above and shown in the figure. A stop loss order was used and priced a penny below the bottom of the scallop (after buying).

For example, if you were to buy the upward breakout from a DI scallop chart pattern and hold it until you encountered a broadening bottom (the first chart pattern listed in the table), but one with a downward breakout, you'd net an average of 50% on the 148 (52 winners, 96 losers) trades. That's an average of 175% on your winners, 18% average loss on your losers, and holding onto the position an average of 3.6 years. You'd find that only 35% of the trades made money but you'd gain an average of 14% per year (ranking 71st where 1 is best). If you removed the stop loss order and just held on until the broadening bottom with a downward breakout appeared, you'd make an average of 124% per trade.

The expectancy averages $3.77 per share per trade which ranks 74th where 1 is the best value.

Notes: All of the above numbers appear in the table except for the average hold time. The rank is based on the net gain for all four performance tables (tables 3 to 6) shown below. Trades with sample counts below 30 are not ranked.

Table 3: Statistics for DI Scallops
Sell PatternAverage
Win
Average
Loss
NetAnnualized
Net
RankNo Stop
Net
Win/Loss
Samples
Win
Loss
Average
Expectancy
Expectancy
Rank
Broadening bottom175%-18%50%14%71124%52/9635%$3.7774
Broadening top169%-17%68%21%29144%116/13846%$6.6635
Broadening formation, right-angled and ascending229%-16%71%26%13110%36/6536%$6.5837
Broadening formation, right-angled and descending138%-17%40%13%7895%28/4837%-$0.7896
Broadening wedge, ascending153%-18%57%18%50102%30/3043%$4.4666
Broadening wedge, descending193%-17%75%22%24148%29/3744%$7.3828
Bump-and-run reversal top157%-17%55%20%40105%127/17942%$4.9860
Diamond bottom544%-24%310%346%10/759%
Diamond top95%-20%31%10%9570%38/4944%$5.0556
Adam & Adam double top303%-17%103%27%11221%266/44238%$14.642
Adam & Eve double top250%-19%85%21%29182%100/15939%$13.485
Eve & Adam double top237%-17%93%23%19171%149/19543%$13.406
Eve & Eve double top224%-18%69%22%24175%108/19436%$7.4526
Falling wedge140%-20%28%12%8297%19/4430%$2.2582
Head-and-shoulders top187%-17%61%18%50130%340/55938%$6.6734
Sell PatternAverage
Win
Average
Loss
NetAnnualized
Net
RankNo Stop
Net
Win/Loss
Samples
Win
Loss
Average
Expectancy
Expectancy
Rank
Head-and-shoulders, complex top156%-18%61%18%50100%51/6245%$4.0371
Rectangle top131%-16%40%14%71112%75/12238%$7.4825
Rising wedge198%-18%71%25%15127%114/16141%$5.7546
Rounding top155%-18%42%12%82105%54/10035%$6.1142
Ascending scallop119%-17%32%14%7156%28/4936%-$3.66104
Descending scallop208%-18%60%22%24125%301/5754%$4.1070
Scallop, inverted and ascending198%-20%69%21%29106%43/6241%$1.2386
Scallop, descending and inverted120%-17%31%12%8260%229/42735%$0.9589
Triangle, ascending135%-18%49%16%6284%53/6844%$9.7915
Triangle, descending137%-18%35%12%8299%41/7934%$5.0755
Triangle, symmetrical189%-18%73%21%29128%172/21944%$7.1231
Triple top294%-16%102%29%7183%300/48638%$9.4618
Rectangle bottom354%-17%101%30%5202%40/8632%$13.544
3 falling peaks181%-18%57%19%44112%780/131037%$3.1778
Roof73%-15%20%9%99132%19/2840%$5.1854
Roof, inverted221%-17%80%29%7163%35/5141%$10.6412
Sell PatternAverage
Win
Average
Loss
NetAnnualized
Net
RankNo Stop
Net
Win/Loss
Samples
Win
Loss
Average
Expectancy
Expectancy
Rank

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Trading Descending and Inverted Scallops: Busted Buy, Non-Busted Sale

Picture of a busted pattern pair.

The figure shows the setup for this scenario. When price busts the bearish chart pattern (downward breakout from a descending and inverted scallop in a bull market), buy. Sell after a downward breakout from the target chart pattern.

Table 4 shows the performance of busted DI Scallops for the entry and sales after downward breakouts from various bearish chart patterns. A stop loss order was used and priced a penny below the bottom of the scallop (after buying).

A busted descending and inverted scallop has a downward breakout but price drops no more than 10% before reversing and moving above the top of the scallop. Buy when price moves at least a penny above the top of the busted scallop. Sell after price drops at least a penny below the target chart pattern.

For example, buying a descending and inverted scallop with a busted downward breakout in a bull market (the entry price is really the higher of a penny above the top of the scallop or the opening price) and selling after the downward breakout from a broadening bottom shows winners averaging gains of 163%. Losses average 13%, for a net of 57%. Only 67 trades occurred with a win/loss ratio of 40%. This scenario ranks the annualized net gain as 29th among the four tables. If you traded this as a buy-and-hold position, meaning no stops were used, the net gain climbed to 145%. Expectancy was $7.64 per share, ranking 23rd where 1 is best.

Trades with sample counts below 30 are not ranked.

Table 4: Statistics for Busted Buys, Normal Sales
Sell PatternAverage
Win
Average
Loss
NetAnnualized
Net
RankNo Stop
Net
Win/Loss
Samples
Win
Loss
Average
Expectancy
Expectancy
Rank
Broadening bottom163%-13%57%21%29145%27/4040%$7.6423
Broadening top176%-15%37%16%6287%36/9727%$1.6885
Broadening formation, right-angled and ascending265%-16%100%32%3112%22/3142%$7.2129
Broadening formation, right-angled and descending131%-14%62%27%11105%21/1953%$12.697
Broadening wedge, ascending271%-13%107%39%2151%24/3342%$5.9144
Broadening wedge, descending202%-13%44%17%5777%14/3926%$3.5475
Bump-and-run reversal top180%-15%72%31%4100%95/11845%$5.9243
Diamond bottom150%-17%61%61%7/847%
Diamond top144%-13%54%20%39104%24/3243%$7.4327
Adam & Adam double top329%-15%108%29%7196%136/24336%$10.8311
Adam & Eve double top226%-16%71%21%29187%55/9936%$12.138
Eve & Adam double top198%-16%53%18%50136%65/13732%$3.5376
Eve & Eve double top187%-14%47%18%50116%62/14230%$9.9014
Falling wedge104%-14%16%9%9922%10/2926%-$2.81102
Head-and-shoulders top213%-15%64%21%29122%201/38035%$5.6548
Sell PatternAverage
Win
Average
Loss
NetAnnualized
Net
RankNo Stop
Net
Win/Loss
Samples
Win
Loss
Average
Expectancy
Expectancy
Rank
Head-and-shoulders, complex top117%-14%32%16%6262%32/5935%-$0.9897
Rectangle top178%-17%54%20%40119%40/7036%$4.3567
Rising wedge97%-15%26%11%8966%77/13337%-$2.18100
Rounding top269%-16%76%21%29124%32/6732%$6.4138
Ascending scallop121%-16%21%12%8239%20/5427%-$3.25103
Descending scallop184%-16%44%19%4487%132/31230%$4.7164
Scallop, inverted and ascending171%-16%26%11%8965%12/4123%-$8.94105
Scallop, descending and inverted144%-16%24%11%8945%98/298-62%$0.7690
Triangle, ascending121%-17%47%19%4481%37/4346%$7.0232
Triangle, descending73%-17%17%8%10273%29/4937%$2.5781
Triangle, symmetrical153%-16%46%18%5085%89/15337%$5.0556
Triple top166%-16%50%17%57107%155/27636%$5.2153
Rectangle bottom137%-16%24%11%8999%18/5126%$2.2283
3 falling peaks213%-16%57%21%29106%342/73032%$3.2477
Roof60%-12%26%10%9538%18/1653%$5.6647
Roof, inverted167%-14%47%22%24122%18/3534%$6.5936
Sell PatternAverage
Win
Average
Loss
NetAnnualized
Net
RankNo Stop
Net
Win/Loss
Samples
Win
Loss
Average
Expectancy
Expectancy
Rank

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Trading Descending and Inverted Scallops: Non-busted Buy, Busted Sale

Picture of a busted pattern pair.

The figure shows an example of how this trade unfolds.

A bullish chart pattern appears and you buy at the breakout. Continue holding until your selected chart pattern appears. The chart pattern is bullish because it has an upward breakout but then things go wrong. Price reverses. Sell when the stock dips below the bottom of the chart pattern (meaning it busts the upward breakout).

Table 5 shows the performance statistics for this setup (buying a normal descending and inverted scallop and selling only after a busted chart pattern appears). A stop loss order was used and priced a penny below the bottom of the scallop (after buying).

For example, buying a descending and inverted scallop with an upward breakout in a bull market and selling a busted broadening bottom shows winning trades making an average of 219%. Losing trades lost 16%, giving a net gain of 78%. The annualized gain is 23% in this case, giving the setup a rank of 19 (where 1 is best). If you traded this without a stop, the net gain climbed to 101%. Of the stocks I looked at, I found 67 trades with 40% of them winning. Expectancy was a $9.52 per share, ranking 16th where 1 is best.

Trades with sample counts below 30 are not ranked.

Table 5: Statistics for Normal Buy, Busted Sale
Sell PatternAverage
Win
Average
Loss
NetAnnualized
Net
RankNo Stop
Net
Win/Loss
Samples
Win
Loss
Average
Expectancy
Expectancy
Rank
Broadening bottom219%-16%78%23%19101%27/4040%$9.5216
Broadening top126%-19%37%11%89130%54/8738%$6.3239
Broadening formation, right-angled and ascending145%-18%43%14%7170%21/3538%$5.4351
Broadening formation, right-angled and descending98%-16%25%7%10477%17/3036%$4.1469
Broadening wedge, ascending69%-18%5%58%4/1127%
Broadening wedge, descending71%-19%10%45%9/1932%
Bump-and-run reversal bottom250%-14%71%23%19174%19/4032%$4.8762
Cup with handle226%-17%58%71%4/931%
Diamond bottom285%-20%92%26%14144%14/2437%$6.7333
Diamond top245%-17%95%29%10197%27/3643%$8.7221
Adam & Adam double bottom265%-16%85%19%43187%72/12936%$11.0110
Adam & Eve double bottom189%-18%53%14%76164%37/7134%$1.9884
Eve & Adam double bottom302%-17%100%25%16227%33/5737%$8.5322
Eve & Eve double bottom199%-16%63%18%49168%41/7137%$3.7873
Falling wedge93%-15%33%10%98120%21/2645%$5.5849
Head-and-shoulders bottom254%-17%81%21%38145%68/12036%$9.9613
Sell PatternAverage
Win
Average
Loss
NetAnnualized
Net
RankNo Stop
Net
Win/Loss
Samples
Win
Loss
Average
Expectancy
Expectancy
Rank
Head-and-shoulders complex bottom134%-13%39%75%7/1335%
Rectangle top106%-16%30%11%8789%32/5238%$5.0258
Rising wedge98%-17%27%10%97133%19/3138%-$2.68101
Round bottom224%-21%126%156%9/660%
Rounding top143%None143%143%4/0None
Ascending scallop89%-20%31%12%8085%37/4247%$4.2568
Descending scallop118%-18%39%16%61108%25/3442%$4.9761
Scallop, inverted and ascending134%-15%43%16%65119%85/13539%$3.8572
Scallop, descending and inverted127%-15%43%12%7969%50/7241%$5.5650
Triangle, ascending174%-17%52%14%70115%24/4336%$6.2740
Triangle, descending83%-16%26%8%10167%22/2943%$6.2141
Triangle, symmetrical165%-16%56%15%68119%104/15640%$5.7545
Triple bottom143%-17%47%13%7782%171/25640%$7.4924
Rectangle bottom318%-20%114%29%6137%21/3240%$19.421
3 rising valleys142%-16%46%14%7597%168/26339%$4.7065
Roof562%-11%390%418%7/370%
Roof, inverted146%-15%52%101%12/1741%
Sell PatternAverage
Win
Average
Loss
NetAnnualized
Net
RankNo Stop
Net
Win/Loss
Samples
Win
Loss
Average
Expectancy
Expectancy
Rank

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Trading Descending and Inverted Scallops: Busted Buy, Busted Sale

Picture of a busted pattern pair.

Table 6 shows the last combination of trading statistics. It shows busted descending and inverted scallops as the entry signal and various busted chart patterns as the exit signal. Keep in mind that some trades were few. A stop loss order was used and priced a penny below the bottom of the scallop (after buying).

The associated figure shows the setup.

For example, buying a busted descending and inverted scallop and selling a busted broadening bottom (first data line in the table) made 225% from the winners, lost 14% on the losers for a net gain of 56%. Annualized, it was 18%. The net gain placed the performance of this setup at 47th, where 1 is best. Removing stops from the trades allowed them to make 95%. Only 34 trades were taken and 29% of them were winners. Expectancy was a gain of $2.80 per share, ranking 80th among the four tables.

Trades with sample counts below 30 are not ranked.


Table 6: Statistics for Busted Buys and Sales
Sell PatternAverage
Win
Average
Loss
NetAnnualized
Net
RankNo Stop
Net
Win/Loss
Samples
Win
Loss
Average
Expectancy
Expectancy
Rank
Broadening bottom225%-14%56%18%4795%10/2429%$2.8080
Broadening top227%-13%59%25%17162%21/4930%$1.0987
Broadening formation, right-angled and ascending256%-14%105%139%11/1444%
Broadening formation, right-angled and descending49%-13%5%4%10546%9/2130%-$1.0198
Broadening wedge, ascending141%-16%76%82%10/759%
Broadening wedge, descending82%-15%26%47%8/1142%
Bump-and-run reversal bottom160%-14%29%10%9462%10/3025%$5.2452
Cup with handle307%-14%109%120%5/838%
Diamond bottom634%-12%472%478%3/175%
Diamond top224%-15%80%22%28176%12/1840%$7.1530
Adam & Adam double bottom337%-15%87%22%23173%36/8829%$8.8920
Adam & Eve double bottom341%-17%92%24%18167%21/4830%$0.6491
Eve & Adam double bottom636%-13%169%41%1288%14/3628%$9.2319
Eve & Eve double bottom164%-15%38%16%6683%19/4530%$1.0588
Falling wedge125%-15%32%141%9/1833%
Head-and-shoulders bottom223%-14%43%14%6994%21/6624%$3.1079
Sell PatternAverage
Win
Average
Loss
NetAnnualized
Net
RankNo Stop
Net
Win/Loss
Samples
Win
Loss
Average
Expectancy
Expectancy
Rank
Head-and-shoulders complex bottom94%-11%17%21%4/1127%
Rectangle top89%-17%16%7%10343%15/3431%-$0.0495
Rising wedge121%-15%29%11%88106%10/2132%-$18.90106
Round bottom78%-6%61%123%4/180%
Rounding top250%-14%74%93%4/833%
Ascending scallop160%-14%49%18%5671%17/3036%$0.5592
Descending scallop163%-13%47%17%5988%13/2534%$11.709
Scallop, inverted and ascending143%-13%40%15%6791%50/9634%$5.0159
Scallop, descending and inverted146%-15%43%16%6067%27/4836%-$1.6099
Triangle, ascending76%-16%10%4%10651%11/2729%$0.0594
Triangle, descending116%-16%19%12%8178%8/2227%$0.3193
Triangle, symmetrical178%-14%52%18%4895%43/8234%$4.7363
Triple bottom217%-16%63%20%4296%58/11434%$14.623
Rectangle bottom191%-19%66%109%11/1641%
3 rising valleys219%-14%67%22%22119%79/14935%$9.4617
Roof551%-11%176%278%2/433%
Roof, inverted8%-16%-5%6%4/544%
Sell PatternAverage
Win
Average
Loss
NetAnnualized
Net
RankNo Stop
Net
Win/Loss
Samples
Win
Loss
Average
Expectancy
Expectancy
Rank

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Trading Descending and Inverted Scallops: Performance Improvements

Here are a few ideas the data suggested which may improve performance of your pattern pairs trading.

Trend Start: Short, Medium, or Long

Find the trend start for your DI scallop. Often you can just look at a chart and see where the trend begins. If not, or you want to be sure, then the glossary describes how to find it.

Determine the length from the trend start to the pattern's start: short term (less than 3 months), medium term (3 to 6 months) or long term (more than 6 months).

Table 7 shows the results for the four combinations of busted/non-busted trades and the resulting performance.

Buying patterns with a medium-term (3 to 6 months) duration from the trend start to the pattern's start results in slightly better performance in 3 of 4 table cells.

Table 7: Short (S) Medium (M) or Long (L) Trend Start and Performance
 Sell Non-Busted PatternSell Busted Pattern
Buy non-busted patternS70% M91% L32%S67% M60% L25%
Buy busted patternS57% M61% L37%S63% M69% L38%

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Moving Averages: 50- and 200-Day SMA

I checked two moving averages at buy time, 50- and 200-day simple moving averages (not as a crossover setup). I compared the breakout price to the value of the moving average. Table 8 shows the performance of buying or selling busted or non-busted patterns when the breakout price was above (A) or below (B) the 50-day simple moving average (SMA).

Buy non-busted descending and inverted scallops when the breakout price is below the 50-day SMA. Buy busted scallops if the buy price was above the SMA.

Table 8: Above (A) Below (B) 50-Day Simple Moving Average
 Sell Non-Busted PatternSell Busted Pattern
Buy non-busted patternA53% B100%A38% B102%
Buy busted patternA66% B25%A70% B31%

Table 9 shows the results of using a longer moving average, the 200-day. Traders often use this as a proxy for the long-term trend.

Buying descending and inverted scallops worked best if the breakout price was below the 200-day SMA.

Table 9: Above (A) Below (B) 200-Day Simple Moving Average
 Sell Non-Busted PatternSell Busted Pattern
Buy non-busted patternA51% B108%A45% B85%
Buy busted patternA47% B80%A49% B92%

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Selling First Bearish Chart Pattern

The prior discussion assumes you buy a DI scallop (busted or non-busted) but sell a chart pattern of your choosing, such as a downward breakout from a head-and-shoulders top (you wait for one to appear). What if you sold the first bearish chart pattern which comes along? How would you do?

Table 10 shows the results sorted by the type of patterns involved (busted or non-busted). For example, if you buy a non-busted descending and inverted scallop and sell the first non-busted chart pattern which comes along, you'd make 11% on average. Annualized, you'd make 22%. This compares to a 21% annualized gain if you sell a designated pattern (like you waited for a double top before selling, which may or may not be the first bearish chart pattern to come along).

In most cases, selling the first bearish pattern which appears beats selling a designated pattern.

The bottom half of the table shows expectancy for the four combinations. The highest expectancy associates with buying a busted descending and inverted scallop and selling the first non-busted pattern which appears.

Table 10: Selling the First Bearish Pattern (Annualized)
 Sell Non-Busted PatternSell Busted Pattern
Buy non-busted pattern11% (22% v 21%)15% (27% v 16%)
Buy busted pattern13% (27% v 20%)-2% (-4% v 20%)
Expectancy (Below)
 Sell Non-Busted PatternSell Busted Pattern
Buy non-busted pattern$2.27$2.33
Buy busted pattern$3.02$-3.17

-- Thomas Bulkowski

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