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The inverted and ascending scallop looks like the right half of an
umbrella. The beauty of this chart pattern is that it performs so well in both bull and bear
markets, sporting a low break even failure rate and a large average rise. Discovered by Thomas
Bulkowski in the early 2000's but it may have been uncovered by others earlier. For more
information see pages 639 to 653 of the book
Encyclopedia of Chart Patterns, Second Edition.
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Important Bull Market Results
Overall performance rank (1 is best): 3 out of 23
Break even failure rate: 4%
Average rise: 43%
Throwback rate: 61%
Percentage meeting price target: 61%
Identification Guidelines
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Characteristic |
Discussion |
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Price trend |
Upward leading to the pattern
or at the bullish turning point of a downward price trend. |
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Shape |
Inverted and backward J shape.
It looks like the right half of an umbrella. The rise should be a straight, or nearly straight run up, then rounded at
the top followed by a small decline. |
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Smooth top |
The peaks should form a rounded
turn but larger patterns may not be as smooth. |
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Retrace |
The end of the pattern on
the right usually retraces 55% of the prior up move. Avoid 100% retraces. |
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Volume |
Trends downward 71% of the
time |
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Confirmation |
The pattern confirms when
price closes above the highest high in the pattern. |
Trading Tips
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Trading Tactic |
Explanation |
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Measure rule |
Compute the height from the highest peak (
B) to the lowest
valley in the pattern (A) and then multiply it by the
above “percentage meeting price target.” Add the difference to the
highest peak (B) to get a price target
C. The
link to the left provides more information on the measure rule.
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Stop |
If price drops below the right scallop edge, sell. See the
figure to the right for the proper stop location.
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Buy |
Buy when price closes above
the highest peak in the pattern. |
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Swingers |
Swing traders will want to
buy when price bottoms on the right and sell when it climbs to the top of the pattern. |
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Avoid |
If price drops below the start
of the pattern, then avoid this one. |
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Avoid valley |
If price forms a distinct right valley and then price
drops below the valley, sell. The figure to the right shows the proper location
for a stop. |
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Breakout volume |
Heavy breakout volume suggests better performance. The
link shown to the left discusses statistics on breakout volume. The following
link gives additional
information on other chart patterns that also do well after heavy breakout volume.
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 The Measure Rule
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 New Stop Location
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Example
The above figure shows an example of an inverted and ascending scallop chart pattern. Price bottoms at point
A and then rises to B where it rounds downward to
C.
To calculate a price target, subtract the price of valley A from peak
B. That finds the height. Multiply the height by 61% (the percentage
meeting price target from Important Bull Market Results table near the top of this page) and add the result to the
price at B. Place a stop loss order a few pennies below C.
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