the chart pattern performed over three decades. This table only shows bull market numbers because bear markets only happened in the 2000s.
Table 11.7 How Often Stops Hit
| Description | Bull Market, Up Breakout | Bear Market, Up Breakout | Bull Market, Down Breakout | Bear Market, Down Breakout |
|---|---|---|---|---|
| Pattern top | 79% | 79% | 3% | 2% |
| Middle | 24% | 20% | 18% | 8% |
| Pattern bottom | 4% | 3% | 75% | 67% |
Table 11.8 Performance and Failures Over Time for Bull Markets
| Description | Up Breakout | Down Breakout |
|---|---|---|
| 1990s | 40% | –16% |
| 2000s | 49% | –12% |
| 2010s | 36% | –13% |
| Performance (above), Failures (below) | ||
| 1990s | 14% | 17% |
| 2000s | 15% | 29% |
| 2010s | 23% | 33% |
Performance over time. Upward breakouts saw the best performance and downward breakouts saw the worst performance in the 2000s. That makes sense. If the market is rising after an upward breakout, those patterns with downward breakouts will struggle to see price drop. It's like trying to swim against the current.
Failures over time. Failures have increased over the three decades for both upward and downward breakout directions. That's not a good omen for future performance.
Table 11.9 shows busted pattern performance. See the Glossary (“Busted pattern”) for details on what a busted pattern looks like and how to spot one. Don't forget your binoculars.
Busted patterns count. Almost half (47%) of broadening tops will bust in bull markets after downward breakouts. Notice that the fewest busted patterns happen after downward breakouts in bear markets. There you have the market current (downward) carrying along price as it drops after a downward breakout. The sample count, at 30, is tiny compared to the some of the others.
Busted occurrence. I counted the types of busts (single, double, or more than two) and found that single busts happen most often. In second place for downward breakouts is triple (or more) busts.
Busted and non‐busted performance. I compared the performance of all busts (one, two, and triple+) with single busted and patterns that don't bust (non‐busted). Busted patterns outperform when the busted breakout direction matches the market trend (upward breakout in bull markets and downward breakout in bear markets).
Table 11.9 Busted Patterns
| Description | Bull Market, Up Breakout | Bear Market, Up Breakout | Bull Market, Down Breakout | Bear Market, Down Breakout |
|---|---|---|---|---|
| Busted patterns count | 351 or 29% | 57 or 29% | 379 or 47% | 30 or 15% |
| Single bust count | 176 or 50% | 42 or 74% | 252 or 66% | 21 or 70% |
| Double bust count | 115 or 33% | 11 or 19% | 12 or 3% | 4 or 13% |
| Triple+ bust count | 60 or 17% | 4 or 7% | 115 or 30% | 5 or 17% |
| Performance for all busted patterns | –14% | –20% | 38% | 38% |
| Single busted performance | –22% | –25% | 55% | 53% |
| Non‐busted performance | –13% | –22% | 42% | 25% |
Recall that after upward breakouts in bull markets, the stock will bust by dropping. So the stock is heading down (and showing better performance, too!), even as the general market is rising. The same applies to busted downward breakouts (price rises) in bear markets (many stocks drop).
Why does this happen? My only guess is that stockholders know a good or bad situation when they see it and trade with enthusiasm, in spite of what's happening in the general market.
Trading Tactics
Table 11.10 outlines trading tactics for broadening tops.
Measure rule. The first thing to consider about trading tactics is the measure rule. The measure rule predicts the price to which the stock will move (in theory). For many chart patterns, one simply computes the height of the chart pattern and adds or subtracts the height from the breakout price. Apply the same method to broadening tops.
Consider Figure 11.5 as an example. The height of the broadening top is the difference between the highest high (B, 12.13) and the lowest low (A, 10), or 2.13. For upward breakouts, add the height to the highest high in the chart pattern, giving a target of 14.26, as shown in the figure.
For downward breakouts, subtract the height from the bottom of the pattern, giving a target of 7.87. If the computation gives a target below zero, then don't use the measure rule. If the target is too far away (21% in this case), there's a good chance price won't drop that far. Use common sense.
Table 11.10 Trading Tactics
| Trading Tactic | Explanation |
|---|---|
|
Measure
|
