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Stocks & Commodities V. 31:5 (10-13): Trendy' Chart Patterns by Thomas Bulkowski
Stocks & Commodities V. 31:5 (10-13): Trendy' Chart Patterns by Thomas Bulkowski
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Trendy Chart Patterns by Thomas Bulkowski
May The Best Pattern Win
Which chart patterns precede a strong breakout move? Find out here.
I never associate chart patterns with being trendy, but when I received an email asking me which chart patterns are trendiest, I had to think twice.
What is a trendy chart pattern?
A chart pattern is trendy if price forms the first minor high or low well after a breakout. In other words, if price changes from moving sideways (consolidating in the chart pattern) to moving up or down (after the breakout), then a new trend has begun. The chart pattern with the highest percentage gain (upward breakout) or loss (downward breakout) to the first minor high or low, respectively, after the breakout, becomes the trendiest; it leads to the strongest trends.
To determine which pattern is the trendiest, you need only measure from the breakout of a chart pattern to the first minor high or low, sort the results, and you will have a list of the trendiest chart patterns. Those chart patterns showing the highest percentage runs to the first minor high or low are the trendiest.
For downward breakouts, I used the same database and a similar technique to find the first minor low after the breakout from a chart pattern. The table in Figure 4 shows the results for the top 10 chart patterns with downward breakouts. The head & shoulders top, another popular chart pattern, did not make the top 10. It ranked 22 out of 35.
Notice that diamond bottoms and big W patterns do not have large sample counts. Big Ws are double bottoms with tall sides. Instead of price continuing to rise, it reverses and drops below the bottom of the pattern, staging a downward breakout. When that happened in the 92 patterns tested, there was a strong down move.
If you test using three and 10 days, it will change the order of the chart patterns to some degree (for upward breakouts, for example, the top three remain the same; for downward breakouts, only diamond bottoms remain first). Separating the chart patterns into bull and bear markets, using other definitions for minor highs or lows, or adding more samples will likely change the order, too.
May The Best Pattern Win
Which chart patterns precede a strong breakout move? Find out here.
I never associate chart patterns with being trendy, but when I received an email asking me which chart patterns are trendiest, I had to think twice.
What is a trendy chart pattern?
A chart pattern is trendy if price forms the first minor high or low well after a breakout. In other words, if price changes from moving sideways (consolidating in the chart pattern) to moving up or down (after the breakout), then a new trend has begun. The chart pattern with the highest percentage gain (upward breakout) or loss (downward breakout) to the first minor high or low, respectively, after the breakout, becomes the trendiest; it leads to the strongest trends.
To determine which pattern is the trendiest, you need only measure from the breakout of a chart pattern to the first minor high or low, sort the results, and you will have a list of the trendiest chart patterns. Those chart patterns showing the highest percentage runs to the first minor high or low are the trendiest.
For downward breakouts, I used the same database and a similar technique to find the first minor low after the breakout from a chart pattern. The table in Figure 4 shows the results for the top 10 chart patterns with downward breakouts. The head & shoulders top, another popular chart pattern, did not make the top 10. It ranked 22 out of 35.
Notice that diamond bottoms and big W patterns do not have large sample counts. Big Ws are double bottoms with tall sides. Instead of price continuing to rise, it reverses and drops below the bottom of the pattern, staging a downward breakout. When that happened in the 92 patterns tested, there was a strong down move.
If you test using three and 10 days, it will change the order of the chart patterns to some degree (for upward breakouts, for example, the top three remain the same; for downward breakouts, only diamond bottoms remain first). Separating the chart patterns into bull and bear markets, using other definitions for minor highs or lows, or adding more samples will likely change the order, too.
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