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Written by and copyright © 2005-2008 by Thomas N. Bulkowski. All rights reserved.
Descending scallops are chart patterns best avoided as trading vehicles. They have a high failure
rate, above the maximum 20% that I consider reasonable. For more information see pages 654 to 669 of the book
Encyclopedia of Chart Patterns, Second Edition
and the following...
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Score your chart pattern for
performance by clicking
here |
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Important Bull Market Results
Overall performance rank for up/down breakouts (1 is best): 22 out of
23; 16 out of 21
Break even failure rate for up/down breakouts: 22%; 15%
Average rise/decline: 22%; 17%
Throwback/pullback rate: 62%; 55%
Percentage meeting price target for up/down breakouts: 35%; 30%
Identification Guidelines
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Characteristic |
Discussion |
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Price trend |
Downward leading to the descending
scallop. |
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Shape |
The descending scallop looks
like the backward letter J. Find two peaks with a rounded valley in between and the
left peak higher than the right one. |
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Volume shape |
Descending scallops show dome
shaped volume 70% of the time. |
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Breakout, confirmation |
A close above the right peak
(upward breakout) or lowest valley (downward breakout) signals a breakout, confirming the pattern as a valid one. |
Trading Tips
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Trading Tactic |
Explanation |
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Measure rule |
Compute the height from the highest peak in the pattern
(A) to the lowest valley
(B) and then multiply it by the above “
percentage meeting price target.”
Add it to the price of the right peak (upward breakouts,
point C) or subtract it from the lowest valley
(downward breakouts, point B) to get
a target price (D). |
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Breakout volume |
Descending scallops with heavy breakout
volume outperform.
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Gaps |
Trade descending scallops with breakout
day gaps. |
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Height |
Trade tall patterns. |
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Stop |
For upward breakouts, place a stop
below the lowest valley if it’s not too far away. For downward breakouts, a stop above the right peak works well. |
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Reversal |
Descending scallops acting as reversals
of the prevailing price trend tend to do best. |
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 The Measure Rule
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Example
Two descending scallop chart patterns appear in the chart above. The first one begins at point A and
ends at B. The second begins at B and completes at
C. In both descending scallops, the breakout is downward and that occurs when price closes
below the low of the chart pattern. Notice the dome-shaped volume pattern in the AB scallop.
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