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Written by and copyright © 2005-2011 by Thomas N. Bulkowski. All rights reserved.
For more information on this pattern, read
Encyclopedia of Chart Patterns, Second Edition  ,
pictured on the right, pages 390 to 404. That chapter gives a complete review of the chart pattern, compared to what is described below.
A complex head-and-shoulders bottom is a chart pattern that looks like an inverted
head-and-shoulders but with multiple heads, multiple shoulders, or sometimes both. The break even failure rate is low
and the performance is good from this chart pattern.
Complex Head-and-Shoulders Bottom
Important Bull Market Results for Complex Head-and-Shoulders Bottom
Overall performance rank (1 is best): 9 out of 23
Break even failure rate: 4%
Average rise: 39%
Throwback rate: 63%
Percentage meeting price target: 74%
The above numbers are based on hundreds of perfect trades. See the glossary for definitions.
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Complex Head-and-Shoulders Bottom Identification Guidelines
| Characteristic | Discussion |
| Price trend | Downward leading to the pattern. |
| Shape | A head-and-shoulders bottom with multiple shoulders or multiple heads but rarely both. |
| Symmetry | The shoulders should bottom near the same price, be nearly the same distance from the head, and look similar to their mirror opposite. |
| Volume trend | Usually higher on the left side of the pattern. Trends
downward 65% of the time. The link to the left gives an example and this
link discusses
performance. |
| Neckline | Joins the highest armpits. |
| Confirmation | The pattern confirms as a valid one when price closes above a down-sloping trendline or above the right armpit when the neckline slopes upward. |
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Complex Head-and-Shoulders Bottom Trading Tips
Consult the associated figure on the right.
| Trading Tactic | Explanation |
| Measure rule | Compute the height from the head low
(A) to the neckline (B)
directly above then multiply it by the “percentage meeting price target (see above "Important Bull Market Results").
” Add the result to the breakout price (C). The
breakout price is where price crosses a down-sloping neckline, or when the neckline
slopes upward, use the peak of the right shoulder armpit. The figure to the right
shows an example for a regular head-and-shoulders bottom. |
| Price reversal | Price must have something
to reverse, so if the decline leading to the pattern is small, expect a small rise. |
| Confirmation | Wait for confirmation (breakout) before
placing a trade. |
| Trends | An intermediate-term (3 to
6 months) drop leading to the pattern results in the best post breakout performance. |
| Neckline | Patterns with down-sloping necklines perform better.
The green neckline on the chart to the upper right shows
an example (Measure Rule figure). |
| Shoulder | The best performance associated with patterns having even
shoulder valleys (comparing the two outermost shoulders only). The
red arrows point to the shoulders in the figure to the
right. |
| Yearly middle | Patterns having breakouts
in the middle third of the yearly price range perform best. |
| Volume trend | An upward volume trend suggests
better post breakout performance. |
| Throwbacks | Throwbacks hurt post breakout performance as the
study discusses. |
| Symmetry | Patterns with an extended right shoulder perform worse. Symmetrical looking patterns also perform better. |
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The Measure Rule
Even Outer Shoulders
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Complex Head-and-Shoulders Bottom Example
The above figure shows an example of a complex head-and-shoulders bottom chart pattern. This complex head-and-shoulders has a dual head. Additional shoulders too far away to really be part of the chart pattern are located at
A and B.
Price breaks out in August but quickly throws back. A throwback occurs 63% of the time in a bull market.
-- Thomas Bulkowski
Other Complex Head-and-Shoulders Bottom Examples
Copyright © 2005-2011 by Thomas N. Bulkowski. All rights reserved. You’re not bothering me. It’s way beyond that.
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