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Written by and copyright © 2005-2009 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 670 to 683. That chapter gives a complete review of the chart pattern, including tour, identification guidelines, focus on failures, performance statistics, trading tactics, and sample trade. Below is just a sliver of the information contained in the book.
Inverted and descending scallops are robust performers in both bull and bear markets (slightly
better in a bear market). Once the downward trend ends - if you can tell when that occurs - then buy and ride the
new uptrend. Discovered by Thomas Bulkowski in mid 2004, but others may have found them sooner.
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Inverted and Descending Scallop
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Important Bull Market Results
Overall performance rank (1 is best): 6 out of 21
Break even failure rate: 10%
Average decline: 18%
Pullback rate: 58%
Percentage meeting price target: 38%
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Identification Guidelines
| Characteristic | Discussion |
| Price trend | Downward leading to the scallop or at bearish turning points. |
| Shape | Looks line an inverted J. |
| Smooth top | Look for a rounded top, not V-shaped. |
| Down move | From the start of the pattern (point A in the above chart) to its high (B) averages 55% of the following down move from highest peak (B) to scallop end (C, the lowest valley). |
| Ends | Both the scallop start and end should form at price turning points. |
| Proportion | The height and width of the scallop should look proportional. |
| Confirmation | The scallop confirms as valid when price closes below the lowest valley in the pattern without first closing above the scallop’s peak. |
Trading Tips
| Trading Tactic | Explanation |
| Measure rule | Compute the height from highest peak
(point B in the Measure Rule chart to the right) to
lowest valley (C) then multiply it by the above
“percentage meeting price target.” Subtract the result from
the lowest valley in the pattern (C) to get a price
target. |
| Short | Short the stock when price closes below the lowest valley in the pattern (C in the Measure Rule figure to the right). |
| Cover | If price retraces (rises) 67% of the decline from B to C in the Measure Rule
figure to the right, then cover the short. |
| Volume trend | Scallops with a falling volume trend perform best. |
| Confirmation | Wait for confirmation before placing a trade. |
| Height | Tall scallops perform better than short ones. |
| Trend | Scallops get narrower and shorter the lower they appear in a price trend. |
| Pullbacks | Pullbacks hurt performance. |
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 The Measure Rule
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Example
The above figure shows an example of an inverted and descending scallop chart pattern. Point A begins the inverted scallop pattern and price peaks at B and then trends down to C, the end of the scallop. This one forms a handle, D, and
that is quite common. Price resumes the downtrend after the handle completes.
-- Thomas Bulkowski
Copyright © 2005-2009 by Thomas N. Bulkowski. All rights reserved. All computers wait at the same speed.
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