|
|
|
|
A complex head-and-shoulders bottom is a chart pattern that looks like an inverted
head-and-shoulders but with multiple heads, multiple shoulders, or sometimes both. The break even failure rate is low
and the performance is good from this chart pattern. For more information see pages 390 to 404 of the book
Encyclopedia of Chart Patterns, Second Edition and read
the following...
|
|
|
|
|
|
|
|
|
Important Bull Market Results
Overall performance rank (1 is best): 9 out of 23
Break even failure rate: 4%
Average rise: 39%
Throwback rate: 63%
Percentage meeting price target: 74%
Identification Guidelines
|
Characteristic |
Discussion |
|
Price trend |
Downward leading to the pattern |
|
Shape |
A head-and-shoulders bottom
with multiple shoulders or multiple heads but rarely both. |
|
Symmetry |
The shoulders should bottom
near the same price, be nearly the same distance from the head, and look similar to their mirror opposite. |
|
Volume trend |
Usually higher on the left side of the pattern. Trends
downward 65% of the time. The link to the left gives an example and this
link discusses
performance. |
|
Neckline |
Joins the highest armpits.
|
|
Confirmation |
The pattern confirms as a
valid one when price closes above a down-sloping trendline or above the right armpit when the neckline slopes upward. |
Trading Tips
|
Trading Tactic |
Explanation |
|
Measure rule |
Compute the height from the head low
(A) to the neckline (B)
directly above then multiply it by the “percentage meeting price target.
” Add the result to the breakout price (C). The
breakout price is where price crosses a down-sloping neckline, or when the neckline
slopes upward, use the peak of the right shoulder armpit. The figure to the right
shows an example. |
|
Price reversal |
Price must have something
to reverse, so if the decline leading to the pattern is small, expect a small rise. |
|
Confirmation |
Wait for confirmation (breakout) before
placing a trade. |
|
Trends |
An intermediate-term (3 to
6 months) drop leading to the pattern results in the best postbreakout performance. |
|
Neckline |
Patterns with down-sloping necklines perform better.
The green neckline on chart to the upper right shows
an example. |
|
Shoulder |
The best performance associated with patterns having even
shoulder valleys (comparing the two outermost shoulders only). The
red arrows point to the shoulders in the figure to the
right. |
|
Yearly middle |
Patterns having breakouts
in the middle third of the yearly price range perform best. |
|
Volume trend |
An upward volume trend suggests
better postbreakout performance. |
|
Throwbacks |
Throwbacks hurt postbreakout performance as the
study discusses.
|
|
|
|
|
|
|
The Measure Rule
|
|
Even Outer Shoulders
|
|
Example
The above figure shows an example of a complex head-and-shoulders bottom chart pattern. This complex head-and-shoulders has a dual head. Additional shoulders too far away to really be part of the chart pattern are located at
A and B.
Price breaks out in August but quickly throws back. A throwback occurs 63% of the time in a bull market.
|
|
They pay for the referral on most items and that helps pay for the cost of this site.
