As of 12/07/2022
  Indus: 33,598 +1.58 +0.0%  
  Trans: 13,768 -130.21 -0.9%  
  Utils: 973 -6.18 -0.6%  
  Nasdaq: 10,959 -56.34 -0.5%  
  S&P 500: 3,934 -7.34 -0.2%  
YTD
-7.5%  
-16.4%  
-0.8%  
-30.0%  
-17.5%  
  Targets    Overview: 12/01/2022  
  Up arrow35,500 or 32,800 by 12/15/2022
  Down arrow13,400 or 14,500 by 12/15/2022
  Up arrow1,000 or 925 by 12/15/2022
  Up arrow12,000 or 10,600 by 12/15/2022
  Up arrow4,250 or 3,850 by 12/15/2022
CPI (updated daily): Arrows on 12/5/22
As of 12/07/2022
  Indus: 33,598 +1.58 +0.0%  
  Trans: 13,768 -130.21 -0.9%  
  Utils: 973 -6.18 -0.6%  
  Nasdaq: 10,959 -56.34 -0.5%  
  S&P 500: 3,934 -7.34 -0.2%  
YTD
-7.5%  
-16.4%  
-0.8%  
-30.0%  
-17.5%  
  Targets    Overview: 12/01/2022  
  Up arrow35,500 or 32,800 by 12/15/2022
  Down arrow13,400 or 14,500 by 12/15/2022
  Up arrow1,000 or 925 by 12/15/2022
  Up arrow12,000 or 10,600 by 12/15/2022
  Up arrow4,250 or 3,850 by 12/15/2022
CPI (updated daily): Arrows on 12/5/22

Bulkowski on Pattern Pairs: Rounded Tops

Initial release: 12/20/2021.

The idea behind pattern pairs is to pick a chart pattern type (like broadening bottoms with upward breakouts) to buy and another to sell (like double tops). You buy the upward breakout from the broadening bottom, hold for a few years, and sell when a double top appears and breaks out downward. Along the way, you give price a chance to rise far enough to overcome those trades which are stopped out for a loss. This is a trend-following strategy.

Trading Rounded Tops: Summary

Picture of the pattern pairs.

The figure illustrates the idea for trading pattern pairs, where price is the red line and the boxes are chart patterns. This articles assumes you buy an upward breakout from either a rounded top or a busted one (price breaks out downward, drops no more than 10%, reverses, and closes above the top of the pattern. Buy as price rises above the top of the pattern).

On the sale side, you can sell the first bearish chart pattern which comes along or wait for your favorite bearish chart pattern to appear and sell then.

Here's a list of the top five performing sell signals, based on annualized gain (annualized because the hold time is often years, in parenthesis).

The following list shows the expected performance of chart pattern pairs, ranked by their expectancy. Expectancy is a way of gauging winning and losing trades and how much money you might make trading a pattern pair. I put the expected profit per trade, per share, in parenthesis.

To improve performance, try these tips.

Top of page

Trading Rounded Tops: Entry and Exit Conditions

The databases I built over several decades doesn't identify every chart pattern. There may be plenty of double tops over the years, for example, that I didn't catalog on the way to the one I did catalog. So buying an upward breakout from a rounded top and selling at the double top I cataloged would be different than choosing to sell a different double top. However, the following analysis does give a real-world flavor for how well you might do trading chart patterns if you follow the pattern pair strategy.

Here's what I used in my analysis.

I used the following 43 chart patterns in the analysis, but some only applied if they were busted.

Top of page

Trading Rounded Tops: Stops

I used a stop loss order set a penny below the bottom of the chart pattern. Price on the way down may have gapped below the stop price (for the sale price), so I used the lower of the stop price or the opening price on the day of sale).

For trailing stops, I removed the stop loss order and used a trailing stop set at 10%, 15%, 20%, or 25% below a peak, never lowering the stop value, but raising it if a higher peak came along during the trade.

In Table 1, I calculated the percentage net gain (the average of gains and losses) when using various trailing stop loss amounts (10%, 15%, 20%, and 25%) for all tested chart patterns according to the busted/non-busted buy/sell configuration. In parenthesis is the size of the average loss so I could detail how losses change with various stop loss orders.

For example, if I tested non-busted rounded tops and sold various non-busted patterns (ascending triangles, broadening tops, head-and-shoulders tops, and so on), I made an average of 65% ("Stop Loss Only" column) after having a stop loss order in place. Losses averaged 25%. Replacing the stop loss with a 10% trailing stop cut the gain to 8% but also trimmed the average loss to 5%. Using a 25% trailing stop allowed me to keep more money, 34%, but losses climbed to 13%. If I didn't use any type of stop, the gain averaged 90% with losses averaging 30%.

Trailing stops worked best with non-busted buys.

Table 1: Various Trailing Stop Settings: Net Profit and (Average Loss)
Data 10%  15%  20%  25%  Stop Loss 
Only
 No Stop
Non-busted buys, non-busted sales 8% (-5%)  13% (-8%)  21% (-11%)  34% (-13%)  65% (-25%)  90% (-30%) 
Busted buys, non-busted sales 3% (-6%)  4% (-8%)  26% (-11%)  30% (-16%)  50% (-30%)  114% (-18%) 
Non-busted buys, busted sales 8% (-5%)  14% (-8%)  20% (-11%)  32% (-14%)  53% (-24%)  87% (-25%) 
Busted buys, busted sales 3% (-5%)  4% (-9)  25% (-13%)  26% (-18%)  43% (-23%)  75% (-15%) 

Top of page

Trading Rounded Tops: Busted Patterns

Table 2 shows what I found when comparing the performance of non-busted patterns (both buy and sell) with busted and non-busted chart patterns. In 22 or 31 contests (up to 31 different chart pattern types, depending on which apply), I compared the three combinations of busted and non-busted buy and sell signals to non-busted buy and sell signals. The table below shows the percentage of time the busted combination beat the non-busted combination in the contests.

For example, I found that busted patterns won up to 45% of the time or 10 of 22 contests when buying a non-busted rounded top and selling a busted chart pattern (compared to non-busted for both).

According to the contest results, avoid trading busted chart patterns..

Table 2: Busted or Non-Busted Contest Winners
 Sell Non-Busted PatternSell Busted Pattern
Buy non-busted patternN/A (benchmark)45%
Buy busted pattern29%32%

Top of page

Trading Rounded Tops: Non-busted Buy, Non-Busted Sale

Picture of a busted pattern pair.

Table 3 shows statistics I collected for rounded tops using the trading rules described above and shown in the figure. A stop loss order was used and priced a penny below the bottom of the chart pattern (after buying).

For example, if you were to buy the upward breakout from a rounded top chart pattern and hold it until you encountered a broadening bottom (the first chart pattern listed in the table), but one with a downward breakout, you'd net an average of 54% on the 124 (41 winners, 83 losers) trades. That's an average of 212% on your winners, 25% average loss on your losers. You'd find that only 33% of the trades made money but you'd gain an average of 16% per year (ranking 28th where 1 is best). If you removed the stop loss order and just held on until the broadening bottom with a downward breakout appeared, you'd make an average of 98% per trade.

The expectancy averages a gain of $0.17 per share per trade which ranks 65th where 1 is the best value.

Notes: The rank is based on the net gain for all four performance tables (tables 3 to 6) shown below. Trades with sample counts below 30 are not ranked.

Table 3: Statistics for Rounded Tops
Sell PatternAverage
Win
Average
Loss
NetAnnualized
Net
RankNo Stop
Net
Win/Loss
Samples
Win
Loss
Average
Expectancy
Expectancy
Rank
Broadening bottom212%-25%54%16%2898%41/8333%$0.1765
Broadening top189%-24%78%23%8124%124/13548%$10.4816
Broadening formation, right-angled and ascending165%-25%58%18%2085%59/7743%$5.4038
Broadening formation, right-angled and descending107%-24%30%12%5045%37/5242%$0.7063
Broadening wedge, ascending267%-23%117%43%1158%42/4548%$5.1840
Broadening wedge, descending112%-24%35%9%6275%36/4843%$2.9655
Bump-and-run reversal top149%-25%70%22%9100%182/15354%$6.5630
Diamond bottom162%-25%95%20%15145%25/1464%$10.1018
Diamond top153%-22%78%28%5108%54/4057%$8.3022
Adam & Adam double top289%-24%133%29%3181%311/30650%$17.333
Adam & Eve double top166%-26%62%16%29103%138/16346%$11.789
Eve & Adam double top259%-24%123%27%6173%153/14252%$14.884
Eve & Eve double top127%-23%41%13%4288%153/20343%$10.0519
Falling wedge91%-24%23%8%6741%33/4841%-$1.7474
Head-and-shoulders top190%-25%68%19%17108%432/56943%$6.0934
Head-and-shoulders, complex top97%-23%33%13%4760%79/8947%$2.3056
Rectangle top133%-25%36%12%5866%62/9839%$3.8848
Rising wedge186%-25%64%20%14113%102/14142%$2.9954
Rounding top141%-23%52%15%3067%99/11846%$4.1846
Ascending scallop100%-28%33%14%3559%35/3947%$2.1157
Descending scallop161%-26%57%16%2589%227/28444%$6.2333
Scallop, inverted and ascending167%-22%46%12%5372%14/2536%-$0.2668
Scallop, descending and inverted118%-24%47%13%4455%151/15350%$4.2844
Triangle, ascending159%-27%47%15%3395%59/8940%$1.4961
Triangle, descending221%-23%66%22%1279%58/10136%-$0.0966
Triangle, symmetrical174%-26%55%18%2389%196/28840%$3.0153
Triple top186%-25%65%18%19114%347/46743%$7.6727
Rectangle bottom109%-27%21%8%6661%43/7935%-$0.3469
3 falling peaks146%-24%55%14%3688%390/44847%$8.3021
Roof72%-23%3%1%7473%13/3428%-$0.7271
Roof, inverted125%-27%49%14%3890%31/3150%$5.7037
Sell PatternAverage
Win
Average
Loss
NetAnnualized
Net
RankNo Stop
Net
Win/Loss
Samples
Win
Loss
Average
Expectancy
Expectancy
Rank

Top of page

Trading Rounded Tops: Busted Buy, Non-Busted Sale

Picture of a busted pattern pair.

The figure shows the setup for this scenario. When price busts the bearish chart pattern (busts a downward breakout from a rounded top in a bull market), buy. Sell after a downward breakout from the target chart pattern.

Table 4 shows the performance of busted rounded tops for the entry and non-busted sales after downward breakouts from various bearish chart patterns. A stop loss order was used and priced a penny below the bottom of the pattern (after buying).

A busted rounded top has a downward breakout but price drops no more than 10% before reversing and moving above the top of the pattern. Buy when price moves at least a penny above the top of the busted pattern. Sell after price drops at least a penny below the target chart pattern.

For example, buying a rounded top with a busted downward breakout in a bull market (the entry price is really the higher of a penny above the top of the pattern or the opening price) and selling after the downward breakout from a broadening top shows winners averaging gains of 109%. Losses average 20%, for a net of 37%. Only 39 trades occurred with a win/loss ratio of 44%. This scenario ranks the annualized net gain as 57th among the four tables. If you traded this as a buy-and-hold position, meaning no stops were used, the net gain climbed to 76%. Expectancy was a gain of $14.61 per share, ranking 6th where 1 is best.

Trades with sample counts below 30 are not ranked.

Table 4: Statistics for Busted Buys, Normal Sales
Sell PatternAverage
Win
Average
Loss
NetAnnualized
Net
RankNo Stop
Net
Win/Loss
Samples
Win
Loss
Average
Expectancy
Expectancy
Rank
Broadening bottom65%-27%14%40%10/1245%
Broadening top109%-20%37%12%5776%17/2244%$14.616
Broadening formation, right-angled and ascending46%-27%-8%14%5/1426%
Broadening formation, right-angled and descending49%-21%11%26%6/746%
Broadening wedge, ascending66%-18%38%65%4/267%
Broadening wedge, descending75%-35%20%245%2/250%
Bump-and-run reversal top81%-23%33%14%3784%28/2454%$7.8224
Diamond bottom815%-27%254%261%1/233%
Diamond top127%-22%75%80%15/865%
Adam & Adam double top245%-25%120%22%13161%51/4454%$21.181
Adam & Eve double top134%-22%42%13%4993%19/2741%$13.777
Eve & Adam double top188%-20%56%16%27130%17/2937%$6.2832
Eve & Eve double top137%-21%48%15%3180%21/2744%$7.3928
Falling wedge75%-26%25%14%6/650%
Head-and-shoulders top181%-22%84%22%11109%74/6752%$11.7410
Head-and-shoulders, complex top75%-25%23%41%14/1548%
Rectangle top166%-28%54%58%11/1542%
Rising wedge93%-22%34%11%6071%18/1949%$6.3231
Rounding top159%-25%44%11%5961%12/2038%$5.1939
Ascending scallop27%-33%1%133%8/657%
Descending scallop234%-27%88%29%4130%33/4244%$9.2320
Scallop, inverted and ascending62%-33%-6%104%2/529%
Scallop, descending and inverted67%-28%-11%-7%75109%8/3718%-$0.7972
Triangle, ascending106%-26%49%14%4065%18/1456%$10.1017
Triangle, descending72%-24%12%5%7133%12/2038%$3.6450
Triangle, symmetrical111%-23%46%13%4379%30/2852%$11.3013
Triple top106%-25%39%12%5176%56/5949%$7.8125
Rectangle bottom144%-24%46%38%5/742%
3 falling peaks145%-30%29%12%5492%40/8033%$3.3052
Roof112%-12%71%76%4/267%
Roof, inverted36%-23%7%16%6/650%
Sell PatternAverage
Win
Average
Loss
NetAnnualized
Net
RankNo Stop
Net
Win/Loss
Samples
Win
Loss
Average
Expectancy
Expectancy
Rank

Top of page

Trading Rounded Tops: Non-busted Buy, Busted Sale

Picture of a busted pattern pair.

The figure shows an example of how this trade unfolds.

A bullish chart pattern appears and you buy at the breakout. Continue holding until your selected chart pattern appears. The chart pattern is bullish because it has an upward breakout but then things go wrong. Price reverses. Sell when the stock dips below the bottom of the chart pattern (meaning it busts the upward breakout).

Table 5 shows the performance statistics for this setup (buying a normal rounded top and selling only after a busted chart pattern appears). A stop loss order was used and priced a penny below the bottom of the chart pattern (after buying).

For example, buying a rounded top with an upward breakout in a bull market and selling a busted broadening bottom shows winning trades making an average of 122%. Losing trades lost 23% giving a net gain of 54%. The annualized gain is 13% in this case, giving the setup a rank of 45th (where 1 is best). If you traded this without a stop, the net gain climbed to 70%. Of the stocks I looked at, I found 53 trades with 53% of them winning. Expectancy was a gain of $21.09 per share, ranking 2nd where 1 is best.

Trades with sample counts below 30 are not ranked.

Table 5: Statistics for Normal Buy, Busted Sale
Sell PatternAverage
Win
Average
Loss
NetAnnualized
Net
RankNo Stop
Net
Win/Loss
Samples
Win
Loss
Average
Expectancy
Expectancy
Rank
Broadening bottom122%-23%54%13%4570%28/2553%$21.092
Broadening top130%-23%41%15%3288%50/7042%$7.7926
Broadening formation, right-angled and ascending165%-28%71%18%2496%21/2051%$1.6959
Broadening formation, right-angled and descending170%-23%45%12%5271%17/3135%-$0.2167
Broadening wedge, ascending238%-28%100%22%10127%13/1448%
Broadening wedge, descending104%-24%22%9%6463%15/2736%$0.5764
Bump-and-run reversal bottom121%-22%33%9%6549%13/2138%$0.8462
Cup with handle83%-20%42%45%9/660%
Diamond bottom67%-20%10%46%7/1335%
Diamond top237%-21%120%27%7151%30/2555%$11.1014
Adam & Adam double bottom167%-24%54%13%48113%87/12741%$13.628
Adam & Eve double bottom161%-25%50%12%55107%47/6941%$4.6742
Eve & Adam double bottom248%-23%94%20%16152%35/4643%$11.5312
Eve & Eve double bottom128%-26%22%6%7096%23/5131%-$1.3373
Falling wedge129%-20%51%19%1866%22/2448%$1.8058
Head-and-shoulders bottom189%-22%74%18%21112%82/9846%$8.2123
Head-and-shoulders complex bottom131%-22%36%40%9/1538%
Rectangle top246%-24%122%31%2152%39/3354%$11.5811
Rising wedge115%-27%37%9%6356%20/2445%$1.5460
Round bottom34%-21%-1%24%5/936%
Rounding top100%-15%43%55%9/950%
Ascending scallop156%-24%51%16%2671%27/3842%$4.2045
Descending scallop65%-29%10%3%7245%15/2142%$5.7236
Scallop, inverted and ascending118%-22%51%15%3496%42/3853%$5.7835
Scallop, descending and inverted168%-25%57%13%4180%14/1942%$4.1247
Triangle, ascending109%-24%18%7%6940%21/4532%$3.4951
Triangle, descending102%-23%38%13%4680%23/2449%$4.8441
Triangle, symmetrical145%-24%46%14%3987%89/12741%$3.7749
Triple bottom129%-24%41%12%5687%98/13342%$10.4815
Rectangle bottom71%-27%11%3%7331%18/2839%-$0.3570
3 rising valleys190%-21%71%18%22103%66/8643%$14.815
Roof180%-28%52%127%5/838%
Roof, inverted137%-27%28%92%9/1833%
Sell PatternAverage
Win
Average
Loss
NetAnnualized
Net
RankNo Stop
Net
Win/Loss
Samples
Win
Loss
Average
Expectancy
Expectancy
Rank

Top of page

Trading Rounded Tops: Busted Buy, Busted Sale

Picture of a busted pattern pair.

Table 6 shows the last combination of trading statistics. It shows busted rounded tops as the entry signal and various busted chart patterns as the exit signal. A stop loss order was used and priced a penny below the bottom of the chart pattern (after buying).

The associated figure shows the setup.

For example, buying a busted rounded top and selling a busted symmetrical triangle made 85% from the winners, lost 25% on the losers for a net gain of 22%. Annualized, it was 7%. The net gain placed the performance of this setup at 68, where 1 is best. Removing stops from the trades allowed them to make 32%. Only 40 trades were taken and 43% of them were winners. Expectancy was a gain of $6.73 per share, ranking 29th among the four tables.

Trades with sample counts below 30 are not ranked.


Table 6: Statistics for Busted Buys and Sales
Sell PatternAverage
Win
Average
Loss
NetAnnualized
Net
RankNo Stop
Net
Win/Loss
Samples
Win
Loss
Average
Expectancy
Expectancy
Rank
Broadening bottom415%-25%95%129%3/827%
Broadening top209%-22%81%96%8/1044%
Broadening formation, right-angled and ascending489%-23%147%215%2/433%
Broadening formation, right-angled and descending23%-27%-13%-13%2/529%
Broadening wedge, ascending76%None76%76%2/0None
Broadening wedge, descending245%-24%111%168%1/150%
Bump-and-run reversal bottom228%-16%106%154%1/150%
Cup with handle23%-29%-8%-17%2/340%
Diamond bottom102%-24%76%108%4/180%
Diamond top172%-20%57%52%2/340%
Adam & Adam double bottom151%-25%73%139%15/1256%
Adam & Eve double bottom184%-27%54%85%10/1638%
Eve & Adam double bottom79%-21%1%68%3/1121%
Eve & Eve double bottom36%-28%-2%27%2/340%
Falling wedge150%-12%81%112%4/357%
Head-and-shoulders complex bottom55%-20%18%128%3/350%
Rectangle top96%-22%17%19%6/1233%
Rising wedge46%-14%6%91%2/433%
Round bottom58%-34%28%26%2/167%
Rounding top13%-24%4%26%3/175%
Ascending scallop11%-19%-7%24%4/640%
Descending scallop455%-34%64%130%1/420%
Scallop, inverted and ascending105%-24%33%73%4/544%
Scallop, descending and inverted10%-21%-6%101%1/150%
Triangle, ascending81%-29%37%65%6/460%
Triangle, descending694%-20%40%104%1/118%
Triangle, symmetrical85%-25%22%7%6832%17/2343%$6.7329
Triple bottom174%-25%36%10%6149%11/2531%$4.3143
Rectangle bottom54%-29%12%34%3/350%
3 rising valleys294%-22%136%152%6/650%
Roof226%-15%146%306%2/167%
Roof, invertedNone-19%-19%8%0/20%
Sell PatternAverage
Win
Average
Loss
NetAnnualized
Net
RankNo Stop
Net
Win/Loss
Samples
Win
Loss
Average
Expectancy
Expectancy
Rank

Top of page

Trading Rounded Tops: Performance Improvements

Here are a few ideas the data suggested which may improve performance of your pattern pairs trading.

Trend Start: Short, Medium, or Long

Find the trend start for your chart pattern. Often you can just look at a chart and see where the trend begins. If not, or you want to be sure, then the glossary describes how to find it.

Determine the length from the trend start to the pattern's start: short term (less than 3 months), medium term (3 to 6 months) or long term (more than 6 months).

Table 7 shows the results for the four combinations of busted/non-busted trades and the resulting performance.

Buy patterns with a short-term (up to 3 months) duration from the trend start to the pattern's start.

Table 7: Short (S) Medium (M) or Long (L) Trend Start and Performance
 Sell Non-Busted PatternSell Busted Pattern
Buy non-busted patternS84% M65% L30%S70% M63% L21%
Buy busted patternS94% M12% L30%S81% M26% L18%

Top of page

Moving Averages: 50- and 200-Day SMA

I checked two moving averages at buy time, 50- and 200-day simple moving averages (not as a crossover setup). I compared the breakout price to the value of the moving average. Table 8 shows the performance of buying or selling busted or non-busted patterns when the breakout price was above (A) or below (B) the 50-day simple moving average (SMA).

In all cases, buying if the breakout price is below the 50-day SMA gives the best results.

Table 8: Above (A) Below (B) 50-Day Simple Moving Average
 Sell Non-Busted PatternSell Busted Pattern
Buy non-busted patternA57% B347%A49% B186%
Buy busted patternA44% B164%A38% B150%

Table 9 shows the results of using a longer moving average, the 200-day. Traders often use this as a proxy for the long-term trend.

In all cases, buying if the breakout price is below the 200-day SMA gives the best results.

Table 9: Above (A) Below (B) 200-Day Simple Moving Average
 Sell Non-Busted PatternSell Busted Pattern
Buy non-busted patternA58% B130%A51% B73%
Buy busted patternA50% B51%A40% B88%

Top of page

Selling First Bearish Chart Pattern

The prior discussion assumes you buy a rounded top (busted or non-busted) but sell a chart pattern of your choosing, such as a downward breakout from a head-and-shoulders top (you wait for one to appear). What if you sold the first bearish chart pattern which comes along? How would you do?

Table 10 shows the results sorted by the type of patterns involved (busted or non-busted). For example, if you buy a non-busted rounded top and sell the first non-busted chart pattern which comes along, you'd make 22% on average. Annualized, you'd make 39%. This compares to a 19% annualized gain if you sell a designated pattern (like you waited for a double top before selling, which may or may not be the first bearish chart pattern to come along).

The results split into non-busted and busted sales. Selling the first non-busted pattern which appears or selling a designated busted pattern worked best.

The bottom half of the table shows expectancy for the four combinations. Buying and selling non-busted patterns gives the highest expectancy ($5.50).

Table 10: Selling the First Bearish Pattern (Annualized)
 Sell Non-Busted PatternSell Busted Pattern
Buy non-busted pattern22% (39% v 19%)7% (13% v 14%)
Buy busted pattern11% (18% v 15%)-4% (-8% v 12%)
Expectancy (Below)
 Sell Non-Busted PatternSell Busted Pattern
Buy non-busted pattern$5.50$2.62
Buy busted pattern$2.61$-0.18

-- Thomas Bulkowski

Top of page

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.
Legal notices: "As an Amazon Associate I earn from qualifying purchases." Paid links).

My novels:  Bedroom to Boardroom book Remember Me book Bumper's Story book Head's Law book
My stock market books:  Chart Patterns: After the Buy Getting Started in Chart Patterns 2nd edition book Trading Basics book Fundamental Analysis and Position Trading book Swing and Day Trading book Encyclopedia of chart patterns book Encyclopedia of Chart Patterns 3rd Edition book Trading classic chart patterns book

Copyright © 2005-2022 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.
Home Advertise Contact Donate Links Privacy/Disclaimer