As of 01/28/2020
  Indus: 28,723 +187.05 +0.7%  
  Trans: 10,861 +64.51 +0.6%  
  Utils: 933 +3.44 +0.4%  
  Nasdaq: 9,270 +130.37 +1.4%  
  S&P 500: 3,276 +32.61 +1.0%  
YTD
 +0.6%  
-0.4%  
 +6.1%  
 +3.3%  
 +1.4%  
  Targets    Overview: 01/14/2020  
  Up arrow29,500 or 28,300 by 02/01/2020
  Up arrow11,500 or 10,700 by 02/01/2020
  Up arrow1,025 or 900 by 02/01/2020
  Up arrow9,600 or 8,900 by 02/01/2020
  Up arrow3,350 or 3,200 by 02/01/2020
As of 01/28/2020
  Indus: 28,723 +187.05 +0.7%  
  Trans: 10,861 +64.51 +0.6%  
  Utils: 933 +3.44 +0.4%  
  Nasdaq: 9,270 +130.37 +1.4%  
  S&P 500: 3,276 +32.61 +1.0%  
YTD
 +0.6%  
-0.4%  
 +6.1%  
 +3.3%  
 +1.4%  
  Targets    Overview: 01/14/2020  
  Up arrow29,500 or 28,300 by 02/01/2020
  Up arrow11,500 or 10,700 by 02/01/2020
  Up arrow1,025 or 900 by 02/01/2020
  Up arrow9,600 or 8,900 by 02/01/2020
  Up arrow3,350 or 3,200 by 02/01/2020

Bulkowski's Busted Pattern Setup

 

Getting Started in Chart Patterns, Second EditionGetting Started in Chart Patterns, Second Edition book.

Chapter 8 starting on page 225 of Getting Started in Chart Patterns, Second Edition, (pictured on the left) discusses busted chart patterns. It has a wealth of information including updated performance statistics for 18 busted chart patterns and how to trade them.

If you click on the above link and then buy the book (or anything) while at Amazon.com, the referral will help support this site. Thanks.

-- Tom Bulkowski

$ $ $

Quick note: Busted patterns work for both stock and option plays, so I repeated the trading setup (it appears in both Options setups and Stocks setups).

What Is A Busted Chart Pattern?

A busted pattern occurs when price breaks out in one direction and moves less than 10% away from the breakout price, reverses, and then breaks out in the new direction. After the pattern busts, price tends to trend in the new direction, setting up a profitable trade. The new trend is often a powerful one, so it lasts longer than usual and is less likely to be fake.

If you search for busted patterns and trade the new breakout direction, you can have a higher success rate (more winning trades that make more money) than if you trade the initial breakout of a chart pattern. Of course anything can happen, so use stops to protect your position.

Busted Symmetrical Triangle

A busted symmetrical triangle appears

I show a busted symmetrical triangle in the chart. The breakout is upward when price rises above the top trendline. Then, price busts the pattern when it reverses and plunges downward, closing below (outside of) the bottom trendline.

With some patterns, the breakout occurs well before the end of the pattern so that when it busts, it is clear that price has zoomed out the other side of the pattern. The situation shown in the chart is difficult to separate from a throwback. Sometimes it is best to wait for price to close below the chart pattern low before placing the trade. In this example, you would want to short the stock when it becomes clear that price is making a determined move down. Often you can tell that when price closes below a prior minor low.

Symmetrical triangles are also notorious for busting out in both directions, sometimes multiple times. Price breaks out upward then downward, then upward and finally moves off horizontally. Ascending and descending triangles make safer plays than symmetrical triangles.

-- Thomas Bulkowski

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See Also

 

Support this site! Clicking any of the books (below) takes you to Amazon.com. If you buy ANYTHING while there, they pay for the referral.

My novels:  Bumper's Story Head's Law

Chart Patterns: After the Buy Getting Started in Chart Patterns, Second Edition Trading Basics Fundamental Analysis and Position Trading Swing and Day Trading Visual Guide to Chart Patterns Encyclopedia of Candlestick Charts Encyclopedia of Chart Patterns 2nd Edition Trading Classic Chart Patterns

Copyright © 2005-2019 by Thomas N. Bulkowski. All rights reserved.
Disclaimer: You alone are responsible for your investment decisions. See Privacy/Disclaimer for more information.
Some pattern names are registered trademarks of their respective owners.

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