O'Reilly logo

Getting Started in Chart Patterns, 2nd Edition by Thomas Bulkowski

Stay ahead with the world's most comprehensive technology and business learning platform.

With Safari, you learn the way you learn best. Get unlimited access to videos, live online training, learning paths, books, tutorials, and more.

Start Free Trial

No credit card required

Chapter 8

Busted Patterns

Making Money by Trading Failure

Traders have known about busted patterns for decades, but I consider them new. You never hear anything about trading a chart pattern that doesn't work as expected, and yet there's money to be made by doing so.

I classify a busted chart pattern as one in which price moves less then 10% after the breakout before changing trend and moving beyond the other side of the chart pattern. This chapter takes a closer look at busted chart patterns.

  • A busted pattern occurs when price breaks out in one direction, fails to move more than 10% before reversing and breaking out in the opposite direction.

Busted patterns are a subset of regular patterns, meaning the sample size can be tiny. For example, of the 1,215 broadening tops I used in this study, after sorting them for bull and bear markets, up and down breakouts, I found that just over 173 busted up (upward breakout) and 174 busted down (downward breakouts) in a bull market. In short, expect the performance numbers to change as more samples become available. I noted low sample counts in the tables when necessary. If the sample sizes are not shown, that means I found more than 100.

image busted pattern performance

a chart pattern that reaches the ultimate high or low less than 10% away from the breakout and then reverses direction. The performance measures how far price moves in the new ...

With Safari, you learn the way you learn best. Get unlimited access to videos, live online training, learning paths, books, interactive tutorials, and more.

Start Free Trial

No credit card required