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  Trans: 12,457 +303.78 +2.5%  
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  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 9/28/22
As of 09/28/2022
  Indus: 29,684 +548.75 +1.9%  
  Trans: 12,457 +303.78 +2.5%  
  Utils: 945 +10.61 +1.1%  
  Nasdaq: 11,052 +222.14 +2.1%  
  S&P 500: 3,719 +71.75 +2.0%  
YTD
-18.3%  
-24.4%  
-3.7%  
-29.4%  
-22.0%  
  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 9/28/22

Bulkowski on Pattern Pairs Rank

Initial release: 12/29/2021. Added ascending scallops and adjusted the figures as necessary: 12/30/21.

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

This article summarizes the average performance of pattern pairs, highlighting the top ten.

Out of 4,081 different pattern pairs, I removed 997 because they had fewer than 30 trades. Statistics from those can be unreliable. That's why you'll see some gaps in the rankings. The statistics below apply to the remaining 3,084 pattern pairs. Commissions, fees, dividends, interest earned on balances waiting to be invested were not included in the totals.

You can download (for your personal use only) an Excel spreadsheet of the summary results.

Pattern Pair Rank: Overview

Table 1: General Statistics for Pattern Pairs
 
Category
Win:
Average
Loss:
Average
Net
Profit
Annual
Profit
No Stop:
Net
Win/Loss
Ratio
 
Expectancy
Average167%-13%39%17%92%29%$4.48
Median142%-12%32%15%83%28%$3.53

The results shown above apply to the results summary spreadsheet (Download Results Spreadsheet (563k, .xlsx file), same as above link), not as a summary of the individual trades. The distinction is an important one.

In my tests, I researched each pattern pair and computed the average performance for the pair. I reported that average on another spreadsheet, which I call the Results Spreadsheet (the same one you can download at the above link). The above table is an average of the data in the Results Spreadsheet. In effect, it's an average of averages. It's not ideal, but I believe it has value. With that in mind, let's look at the results.

The above table shows the average and median values of the various categories for pattern pairs shown in the Results Spreadsheet. The following definitions apply to all tables.

Win: Average. This is the average percentage gain for all pattern pairs which showed a profit. For example, the average gain was 167%. The median win, which is the middle value from a sorted list, was 142%. Half of the average trades did better than this and half did worse.

Loss: Average. This is the percentage loss for all trades which showed no profit ($0 gain) or a loss. For the trades falling in this category, the average loss was 13%, the median loss was 12%.

Net Profit. When you combine the profits and losses from a pattern pair, the average net profit was a gain of 39%.

Annual Profit. This is the net profit annualized. If you held a pattern pair for three years and made 33% (as a fictitious example), that's 11% each year.

No Stop: Net. This is the net profit for trades which did not use a stop loss order.

Win/Loss Ratio. This is how many trades showed a profit, on average.

Expectancy. Expectancy is a way of gauging winning and losing trades and how much money you might make trading a pattern pair. The formula is: Expectancy = (% wins * Average win) - (% losses * Average loss).

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Pattern Pair Rank: Largest Winning Trades

Table 2: Largest Winning Trades
 
Rank
Buy
Pattern
Sell
Pattern
Win:
Average
Loss:
Avg
Net
Profit
Annual
Profit
Annual
Rank
No Stop:
Net
Win/Loss
Trades
W/L
Ratio
 
Expectancy
Expectancy
Rank
1Busted rectangle topEve & Eve double top2302%-6%426%217%1587%41/17819%$21.9842
2Busted rectangle topScallop, inverted and ascending2022%-6%610%213%2682%17/3930%$29.2517
3Busted rectangle topBusted 3 rising valleys1684%-6%411%156%4506%40/12225%$22.5535
4Busted rectangle topBusted triple bottom1484%-5%395%163%3486%57/15527%$24.7627
5RoofBusted Eve & Adam double bottom1326%-6%127%80%13264%3/2710%$3.101683
6Diamond topBusted Eve & Adam double bottom1125%-7%189%86%11316%9/4317%$5.60915
7Broadening formation, right-angled and ascendingScallop, inverted and ascending1098%-13%285%137%5356%15/4127%$11.24248
8RoofBusted Adam & Eve double bottom1049%-8%129%57%36320%4/2713%$9.39366
9Busted rectangle topEve & Adam double top1042%-6%249%94%8387%59/18324%$14.60144
10Busted broadening wedge, descendingBusted Triple bottom899%-10%147%84%12165%10/4817%$29.8516

Table 2 shows the pattern pairs with the highest percentage gain. The table is sorted on the "Win: Average" column, and includes winning trades only.

The winning pair is to buy a busted rectangle top and sell an Eve & Eve double top. A busted rectangle is a rectangle with a downward breakout. Price drops no more than 10%, reverses and closes above the top of the pattern. If you have a buy stop in place a penny above the top of the rectangle, you may open the trade near the optimum price.

Sell when an Eve & Eve double top confirms when price drops at least a penny below the bottom of the chart pattern.

On the buy side, a busted rectangle top appears most often (five times!).

On the sell side, a busted Eve & Adam double bottom appears twice in the list. Six of ten rows use busted patterns, which is a strong showing.

The average win ("Win: Average") seems outsized and unbelievable. I researched this and found a trade in Amazon stock which lasted 21 years and made 72,000+%. It's possible that someone held onto the stock that long and bought it at the right moment (the breakout from the chart pattern). A review of other trades for that pattern pair found 10 trades from 8 stocks with gains exceeding 1,000%. Another 10 trades showed gains between 100% (a double) and 1,000%. In other words, large gains are not common but they do happen. I chose to leave them in because I've had such large gains in my trading, often holding stocks for many years, too.

Losses ("Loss: Avg") are reasonable but they are averages. The size of the loss will depend (mostly) on the height of the chart pattern. One of the things I've noticed with rectangles, is that the losses are small compared to other, taller, chart patterns. Recall that a stop is set a penny below the bottom of chart patterns, so the taller they are, the larger the potential loss but the less often a stop triggers.

Net profit is about double the size of annual profit, suggesting a hold time of 2 to 3 years.

The "No Stop: Net" is how much you can make, on average, if you do not use a stop loss order. If you're willing to buy-and-hold for 2 to 3 years, then the rewards can be huge.

One of the big surprises in this table and others is the win/loss ratio ("W/L Ratio") is small. I don't know if this is true or not, but I've heard that trend following strategies commonly have a win/loss ratio in the 40% range.

Expectancy: You can make almost $30 a share per trade (lines 2 and 10) or you can make $3.10 (line 5). Even though the average winning trade is three or four digits (percentage), you have to pick a big winner if only 10% of your trades win (line 5).

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Pattern Pair Rank: Smallest Losing Trades

Table 3: Smallest Losing Trades
 
Rank
Buy
Pattern
Sell
Pattern
Win:
Average
Loss:
Avg
Net
Profit
Annual
Profit
Annual
Rank
No Stop:
Net
Win/Loss
Trades
W/L
Ratio
 
Expectancy
Expectancy
Rank
1RoofBusted broadening top306%-4%16%17%1155143%2/287%$3.131672
2Falling wedgeBusted diamond top302%-5%77%47%70128%15/4127%$5.33987
3Busted rectangle topBroadening wedge, descending153%-5%35%18%1125132%18/5425%$3.611509
4Falling wedgeBusted scallop, descending and inverted375%-5%73%66%23124%8/3121%$2.491920
5RoofBusted 3 rising valleys113%-5%16%11%2073109%8/3817%$0.242631
6Busted Adam & Adam double topBusted diamond top109%-5%18%20%85963%7/2820%$4.581204
6Triangle, descendingBusted scallop, inverted and ascending107%-5%25%15%143773%25/6627%$4.021386
8Busted rectangle topBusted scallop, descending and inverted164%-5%30%17%1255111%10/3821%$1.152386
9Busted rectangle topBusted rising wedge818%-5%262%88%10318%12/2532%$11.21249
10RoofBusted Adam & Adam double bottom132%-5%10%8%2345161%6/5011%$6.59715

Table 3 shows the results sorted by the "Loss: Avg" column. These are the pattern pair trades which lost the smallest amount. The busted rectangle for buying seems to be a favorite (three times in the table). On the sell side, busted patterns are plentiful with a busted Adam & Adam double bottom appearing twice.

Notice that a rank of 6 appears twice. That's not a mistake. Results are a tie for those two lines. You'll also notice that the loss average column shows 5% often. If you expand the number of decimal places, the rank order is correct for what's shown.

Look at line 1, the pattern pair with the smallest average loss. The win/loss ratio is just 7% and only 2 of 28 trades were profitable and yet they made a combined 306%. That's due to big gains from those two winning trades. I'd much prefer trading line 8 with a 32% win/loss ratio.

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Pattern Pair Rank: Highest Net Profit

Table 4: Highest Net Profit
 
Rank
Buy
Pattern
Sell
Pattern
Win:
Average
Loss:
Avg
Net
Profit
Annual
Profit
Annual
Rank
No Stop:
Net
Win/Loss
Trades
W/L
Ratio
 
Expectancy
Expectancy
Rank
1Busted rectangle topScallop, inverted and ascending2022%-6%610%213%2682%17/3930%$29.2517
2Busted rectangle topEve & Eve double top2302%-6%426%217%1587%41/17819%$21.9842
3Busted rectangle topBusted 3 rising valleys1684%-6%411%156%4506%40/12225%$22.5535
4Busted rectangle topBusted triple bottom1484%-5%395%163%3486%57/15527%$24.7627
5Broadening formation, right-angled and ascendingScallop, inverted and ascending1098%-13%285%137%5356%15/4127%$11.24248
6Busted rectangle topBump-and-run reversal top844%-6%275%100%6339%78/15833%$15.08126
7Busted rectangle topBusted rising wedge818%-5%262%88%10318%12/2532%$11.21249
8Busted rectangle topEve & Adam double top1042%-6%249%94%8387%59/18324%$14.60144
9Busted broadening wedge, ascendingBusted triangle, symmetrical688%-10%243%98%7261%28/4936%$5.271001
10Rectangle bottomBusted Diamond bottom711%-7%232%56%43374%11/2233%$18.1975

Table 4 ranks the results by the highest net profit. Busted rectangle tops appear often as a buy pattern. There's no consistent sell pattern except to say that half are busted ones.

The number of trades has climbed dramatically, suggesting the statistics are more reliable. The win/loss ratio is higher than in other tables, too.

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Pattern Pair Rank: Highest Annualized Net Profit

Table 5: Highest Annualized Net Profit
 
Rank
Buy
Pattern
Sell
Pattern
Win:
Average
Loss:
Avg
Net
Profit
Annual
Profit
Annual
Rank
No Stop:
Net
Win/Loss
Trades
W/L
Ratio
 
Expectancy
Expectancy
Rank
1Busted rectangle topEve & Eve double top2302%-6%426%217%1587%41/17819%$21.9842
2Busted rectangle topScallop, inverted and ascending2022%-6%610%213%2682%17/3930%$29.2517
3Busted rectangle topBusted triple bottom1484%-5%395%163%3486%57/15527%$24.7627
4Busted rectangle topBusted 3 rising valleys1684%-6%411%156%4506%40/12225%$22.5535
5Broadening formation, right-angled and ascendingScallop, inverted and ascending1098%-13%285%137%5356%15/4127%$11.24248
6Busted ascending scallopEve & Eve double top858%-13%186%108%6239%13/4423%$62.923
7Busted rectangle topBump-and-run reversal top844%-6%275%100%7339%78/15833%$15.08126
8Busted broadening wedge, ascendingBusted triangle, symmetrical688%-10%243%98%8261%28/4936%$5.271001
9Busted rectangle topEve & Adam double top1042%-6%249%94%9387%59/18324%$14.60144
10Rectangle topBusted roof, inverted547%-10%161%92%10214%15/3431%$15.77114

Table 5 sorts the results by the highest annualized net profit. This is different from the prior table because it sorts the numbers according to results per year. If you have a trade which makes 25% in half a year, that's a 50% annualized return (not counting dividends). A trade making 25% in two years drops the annual gain to 12.5%. As I mentioned before, the net profit is often between 2 and 3 times higher than the annual rate, suggesting a 2 to 3 year hold time. That makes sense. It's going to take time to make large gains.

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Pattern Pair Rank: Trades with No Stop order

Table 6: Trades with No Stop Loss Order: Net Profit
 
Rank
Buy
Pattern
Sell
Pattern
Win:
Average
Loss:
Avg
Net
Profit
Annual
Profit
Annual
Rank
No Stop:
Net
Win/Loss
Trades
W/L
Ratio
 
Expectancy
Expectancy
Rank
1Busted rectangle topScallop, inverted and ascending2022%-6%610%213%2682%17/3930%$29.2517
2Busted rectangle topEve & Eve double top2302%-6%426%217%1587%41/17819%$21.9842
3Busted rectangle topBusted 3 rising valleys1684%-6%411%156%4506%40/12225%$22.5535
4Busted rectangle topBusted triple bottom1484%-5%395%163%3486%57/15527%$24.7627
5Busted triple topBusted broadening bottom213%-9%39%16%1264446%22/8121%$7.46562
6Busted rectangle topEve & Adam double top1042%-6%249%94%8387%59/18324%$14.60144
7Rectangle bottomBusted diamond bottom711%-7%232%56%43374%11/2233%$18.1975
8Broadening formation, right-angled and ascendingScallop, inverted and ascending1098%-13%285%137%5356%15/4127%$11.24248
9Busted rectangle topBump-and-run reversal top844%-6%275%100%6339%78/15833%$15.08126
10Bump-and-run reversal bottomBusted broadening bottom284%-25%116%32%236328%42/5444%$13.46173

Table 6 sorts the table by how well pattern pairs perform when a stop loss order is not used. Busted patterns appear 7 times as buy patterns and 5 times as sell patterns. Hold times appear to be closer to 3 years than 2. The average win seems outsized probably due to large gains from a few stocks. Losses are contained except for line 10, at 25%. Ouch! Samples sizes are good. Expectancy is good. I'm feeling good, too.

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Pattern Pair Rank: Highest Win/Loss Ratio

Table 7: Highest Win/Loss Ratio
 
Rank
Buy
Pattern
Sell
Pattern
Win:
Average
Loss:
Avg
Net
Profit
Annual
Profit
Annual
Rank
No Stop:
Net
Win/Loss
Trades
W/L
Ratio
 
Expectancy
Expectancy
Rank
1Ugly double bottomBusted scallop, inverted and ascending177%-18%121%23%624147%35/1471%$21.0549
2Round bottomBusted diamond bottom153%-22%91%20%843121%24/1365%$9.08385
3Rounding topDiamond bottom162%-25%95%20%909145%25/1464%$10.10321
4Round bottomBusted scallop, descending and inverted139%-24%79%18%1117101%38/2263%$11.91215
5Round bottomBump-and-run reversal top154%-24%86%33%219112%323/20062%$10.35305
6Ugly double bottomBroadening formation, right-angled and descending103%-8%60%22%71564%27/1761%$17.1990
7Round bottomAscending scallop130%-27%68%25%46286%70/4660%$5.49951
8Busted 3 falling peaksBusted roof132%-18%72%22%708107%18/1260%$20.2554
9Round bottomDiamond top168%-23%90%29%333137%82/5659%$9.86336
10Rounding topDiamond top153%-22%78%28%383108%54/4057%$8.30463

If you want to win more often, Table 7 shows the results sorted by the highest win/loss ratio.

Losses are big, over 20% but annual profit is good. Trades are few except for line 5, with 523 (323 winners and 200 losers). For that line the average win is 154% but you have to tolerate an average loss of 24%.

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Pattern Pair Rank: Highest Expectancy

Table 8: Highest Expectancy
 
Rank
Buy
Pattern
Sell
Pattern
Win:
Average
Loss:
Avg
Net
Profit
Annual
Profit
Annual
Rank
No Stop:
Net
Win/Loss
Trades
W/L
Ratio
 
Expectancy
Expectancy
Rank
1Busted ascending scallopBusted triple bottom816%-14%193%80%14313%12/3625%$68.351
2Busted ascending scallopBusted 3 rising valleys795%-12%189%79%16224%10/3025%$64.382
3Busted ascending scallopEve & Eve double top858%-13%186%108%6239%13/4423%$62.923
43 rising valleysBusted Adam & Eve double bottom559%-24%154%40%127220%130/29531%$47.084
5Scallop, inverted and ascendingBusted Adam & Eve double bottom286%-20%74%20%886193%112/25331%$40.285
6Busted ascending scallopEve & Adam double top449%-13%147%67%25253%17/3235%$39.676
7Rectangle bottomBusted Adam & Eve double bottom637%-10%158%49%69251%33/9426%$36.707
8Busted broadening wedge, descendingEve & Eve double top609%-11%172%79%16236%18/4330%$36.088
93 rising valleysEve & Eve double top437%-25%164%48%74225%679/98041%$34.389
10Descending scallopBusted scallop, inverted and ascending144%-17%36%15%1566101%44/8833%$33.8610

Table 8 shows the results sorted by the expectancy column.

Four ascending scallops and two 3 rising valleys appears in the buy column. Busted patterns are plentiful for selling (8 times in the table).

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-- Thomas Bulkowski

See Also

 

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