Chart Analysis · Lesson 14 · Advanced
Chart Patterns with Bulkowski's Honest Failure Statistics
You trade chart patterns only after close confirmation and judge every pattern by its real failure rate instead of by the pretty picture.
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Real Numbers Instead of a Pretty Picture
Bulkowski measured over 38,500 patterns. A breakout is a close outside the boundary, never an intraday spike. You never trade unconfirmed patterns, with twin patterns 64 to 65 percent never confirm.
Breakout means close, not spike
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What the Failure Rate Says
The break-even failure rate is the share of patterns that do not even run 5 percent. Single digits is good, over 20 percent is unacceptable. Only trade patterns above the median height and with the trend, that lowers the failure rate.
Estimate the failure rates.
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The key points at a glance
- A breakout means a close outside the boundary, never an intraday spike.
- Trade with the trend has the lowest failure rates, tall beats short.
- Average rise assumes perfect trades, in reality spread, slippage and funding eat the edge.
Deep dive
Why the average rise is never your return expectation
Bulkowski's average rise is a perfect trade: buy at the breakout, sell at the ultimate high, no costs. The chance of hitting both points is close to zero. The number only serves to compare patterns against each other, not as a target for your account.
- Use the rank: a high and tight flag beats an ascending triangle
- Ignore the absolute percentage for your position target
- Bullish patterns give back 28 to 36 percent on average after the high
Break-even failure rate rises cumulatively
The break-even failure rate counts patterns that fail to run 5 percent after the breakout. Single digits is good, over 20 percent unacceptable. But the table is cumulative and rises fast: for the head and shoulders top, 54 percent fail to reach a 20 percent move.
Throwback, pullback and the busted-pattern counter
Throwback and pullback feel like a second chance but rob momentum. With the pipe bottom, patterns without a throwback run to target 51 percent of the time, with one only 38 percent. Avoid patterns with nearby congestion.
If a pattern runs under 5 percent and reverses sharply, the counter is often more lucrative. A busted Eve & Adam double top delivers 63 percent counter-move in a bull market. Only trade above the median height, with the trend, after close confirmation.
Sources: Bulkowski, Murphy, Goodman
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