Bulkowski’s Ascending Scallops

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Ascending scallops are arguably the most common chart pattern, but they are poor performers, especially in a bear market. Downward breakouts from the ascending scallop chart pattern is especially treacherous as price tends to reverse quickly. Trade this pattern carefully and be sure to have a stop in place. For more information see pages 624 to 638 of the book Encyclopedia of Chart Patterns, Second Edition and read the following...

Shown is an ascending scallop chart pattern

Score your chart pattern for
performance by clicking here

Important Bull Market Results

Overall performance rank for up/down breakouts (1 is best): 16 out of 23; 20 out of 21
Break even failure rate for up/down breakouts: 10%; 27%
Average rise/decline: 31%; 14%
Throwback/pullback rate: 58%; 56%
Percentage meeting price target for up/down breakouts: 58%; 25%

Identification Guidelines

Characteristic Discussion
Price trend Upward leading to the chart pattern.
Shape The chart pattern looks like the letter J. Find two peaks with a rounded valley in between and a higher right peak.
Volume shape Ascending scallops often show U-shaped volume, which the link to the left shows.
Narrowing Scallops tend to be wider near the start of a price trend than near the end.
Breakout, confirmation A close above the highest high signals an upward breakout. Downward breakouts are a close below the pattern’s low. A breakout confirms the scallop as a valid chart pattern.

Trading Tips

Trading Tactic Explanation
Measure rule Compute the height from the highest peak (A) to the lowest valley in the pattern (B) and then multiply it by the above “percentage meeting price target.” Add the difference to the highest peak (A) to get a price target for upward breakouts (C) or subtract it from the lowest valley (B) for downward breakouts to get a target price. The link to the left provides more information on the measure rule.
Handle When price peaks on the right of the pattern, it often retraces, forming a handle or another scallop. When price bottoms, buy. The figure on the lower right shows an example.
Stop Place a stop below the lowest valley (B in the figure to the upper right) if it’s not too far away. The associate link provides more information about stop placement.
Tall patterns Tall patterns perform better than short ones. The associated link on the left gives more information.
Volume trend A rising volume trend suggests better performance. The link gives an example.
Volume shape Scallops with upward breakouts do better when volume is U-shaped. The link to the left provides performance information. Downward breakouts perform best when volume is dome shaped. This link provides an example.
Breakout volume Ascending scallops with heavy breakout volume outperform. The link to the left provides more information while this link provides performance information.
Yearly low Breakouts from scallops within a third of the yearly low do best. See the link to the left for more information.
Throwback Throwbacks hurt postbreakout performance. The link on the left defines a throwback and this link gives performance information.
Series Ascending scallops in a rising price trend tend to get shorter and narrower as the trend end approaches.
Ascending scallop measure rule
The Measure Rule
Ascending scallop with handle buy point
Scallop Handle

Example

Ascending scallop chart pattern example

The above figure shows an example of an 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 58% (upward breakouts, 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 if the ascending scallop forms a handle. If no handle appears, a stop below A may be too far away, but consider it. Raise the stop as price rises.

For downward breakouts, subtract the B-A height from A to get a lower target. Ignore targets below zero.

Copyright © 2005-2007 by Thomas N. Bulkowski. All rights reserved. I’m paranoid! Stop following me!