Chart Pattern Statistics
Every chart pattern has a percentage of likelihood that it will occur (see chart below). Chart pattern statistics are the result of a study done by Thomas Bulkowski in his book "Encyclopedia of Chart Patterns".
He comprised a database of 500 stocks, all with durations of 5 years (1991-96) of daily price data on which to collect the following statistics:
Percent of successful formations
Percentage of formations meeting predicted price target. Price targets are a calculated minimum price rise or decline.
Average rise or decline of successful formations
The measured average rise or decline from the price on the breakout day (using daily high or low) that is closest to the formation.
Likely rise or decline
Computed by measuring the individual percentage rise or decline for each formation and tabulating a frequency distribution of the results. The most likely rise or decline is the range with the highest frequency and usually excludes the rightmost column.
Percentage of formations that do not work as expected, including 5% failures. The numbers apply to formations once they stage a breakout (confirming the formation).
Average time to throwback completion
A throwback is an upside breakout that returns prices to the top of the formation or trendline boundary. A pullback is a downside breakout that returns prices to the bottom of the formation or trendline boundary. Both occur after a breakout and return within 30 days. The percentages for throwbacks apply to formations with upside breakouts only; pullback percentages appy to downside breakouts only.
If "Classic Patterns" is selected then the Pattern Duration criteria is enabled. This allows the investor to restrict the search to patterns that formed over a minimum or maximum number of days.
Technical Analysis publications often anticipate that if a stock exhibits the price movement suggested by a classic pattern, this will occur within a time period equivalent to the duration of the pattern. If the anticipated price movement does not occur within that time period, then the pattern may have broken down and the suggested price movement may not occur after all. This means that longer patterns anticipate possible price movement over a longer term, and shorter patterns anticipate possible price movement over a shorter term. The investor might set this criteria based on the desired trading horizon.
Inbound Trend Duration
This criteria is enabled if "Classic Patterns" or "Short-term Patterns" is selected. The trend leading into the pattern is often referred to as the "inbound trend". Many patterns indicate a reversal or continuation of this prior trend. Therefore it is useful for the investor to ensure that the prior trend was well-established.
Some technical analysts prefer an inbound trend that is at least as long as the pattern itself. In this case, if an investor is specifying a pattern duration of at least 30 days, then the investor might also want to specify an inbound trend duration of at least 30 days. The investor should note that it is not always necessary to have an inbound trend that is at least as long the pattern. In many cases, an inbound trend can be considered well-established if it is a shorter but strong rally or decline.
|Pattern||Failure rate||Throwback (%)||Rise / Decline Aver. (%)||Rise / Decline Likely (%)|
|Rectangle Bottom Upside breakout||0%||Throwback 61%||46%||20%|
|Rectangle Top Downside Breakout||0%||Pullback 55%||-20%||-20%|
|Broadening Bottom,Upside Breakout||2%||NS||25%||-10%|
|Rectangle Top Upside Breakout||2%||Throwback 53%||52%||20-30%|
|Ascending Triangle||2%||Throwback 58%||44%||20%|
|Symmetrical Triangle Bottom Downside Breakout||2%||Pullback 57%||-19%||-10%|
|Falling Wedge||2%||Throwback 47%||43%||20-30|
|Double Bottom||3%||Throwback 68%||40%||20%|
|Symmetrical Triangle Bottom Upside Breakout||3%||Throwback 43%||41%||20%|
|Broadening Top, Down Breakout||4%||NS||-23%||-10.00%|
|Broadening Top, Up Breakout||4%||NS||34%||-15-20%|
|Rectangle Bottom Downside Breakout||4%||Pullback 70%||-19%||-20%|
|Descending Triangle||4%||Pullback 64%||-19%||-20%|
|Triple Bottom||4%||Throwback 70%||38%||20%|
|Head & Shoulders Bottom||5%||Throwback 52%||38%||20-30%|
|Symmetrical Triangle Top Upside Breakout||5%||Throwback 58%||37%||20%|
|Broadening Bottom,Downside Breakout||6%||NS||-27%||-15-20%|
|Complex Head & Shoulders Bottom||6%||Throwback 47%||37%||20-30%|
|Symmetrical Triangle Top Downside Breakout||6%||Pullback 59%||-20%||-15%|
|Rising Wedge||6%||Pullback 53%||-19%||-15%|
|Head & Shoulders Top||7%||Pullback 45%||-23%||-15%|
|Complex Head & Shoulders Top||8%||Pullback 64%||-27%||-20%|
|Cup & Handle||10%||Throwback 74%||38%||10-20%|
|Dead Cat Bounce||10%||NS||-15%||-15%|
|Bear Flag||12%||Pullback 20%||-17%||-15%|
|Diamond Bottom||13%||Throwback 43%||35%||15%|
|Bull Flag||13%||Throwback 10%||19%||20%|
|Bearish Island Reversal||13%||Pullback 65%||-21%||-10%|
|Triple Top||15%||Pullback 84%||-21%||-10%|
|Double Top||17%||Pullback 69%||-20%||-10%|
|High Tight Flag||17%||Throwback 47%||63%||20-30%|
|Bullish Island Reversal||17%||Throwback 70%||34%||20%|
|One Day Reversal Bottom||17%||Throwback 61%||26%||10-15%|
|Bullish Pennant||19%||Throwback 16%||21%||15-20%|
|One Day Reversal Top||24%||Pullback 71%||-19%||-10%|
|Diamond Top||25%||Pullback 59%||-21%||-20%|
|Outside Day, Upside Breakout||25%||NS||32%||10%|
|Bearish Pennant||34%||Pullback 17%||-17%||-25%|
|Outside Day, Downside Breakout||42%||NS||-17%||-10%|
|Inside Day, Downside Breakout||51%||NS||-10%||-5|
|Inside Day, Upside Breakout||56%||NS||13%||5%|