Bulkowski’s Descending Scallops

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Descending scallops are chart patterns best avoided as trading vehicles. They have a high failure rate, above the maximum 20% that I consider reasonable. For more information see pages 654 to 669 of the book Encyclopedia of Chart Patterns, Second Edition and the following...

Important Results

Identification Guidelines

Trading Tips

Example

A descending scallop chart pattern appears

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Important Bull Market Results

Overall performance rank for up/down breakouts (1 is best): 22 out of 23; 16 out of 21

Break even failure rate for up/down breakouts: 22%; 15%

Average rise/decline: 22%; 17%

Throwback/pullback rate: 62%; 55%

Percentage meeting price target for up/down breakouts: 35%; 30%

Identification Guidelines

Characteristic	Discussion
Price trend	Downward leading to the descending scallop.
Shape	The descending scallop looks like the backward letter J. Find two peaks with a rounded valley in between and the left peak higher than the right one.
Volume shape	Descending scallops show dome shaped volume 70% of the time.
Breakout, confirmation	A close above the right peak (upward breakout) or lowest valley (downward breakout) signals a breakout, confirming the pattern as a valid one.

Trading Tips

Trading Tactic	Explanation
Measure rule	Compute the height from the highest peak in the pattern (A) to the lowest valley (B) and then multiply it by the above “ percentage meeting price target.” Add it to the price of the right peak (upward breakouts, point C) or subtract it from the lowest valley (downward breakouts, point B) to get a target price (D).
Breakout volume	Descending scallops with heavy breakout volume outperform.
Gaps	Trade descending scallops with breakout day gaps.
Height	Trade tall patterns.
Stop	For upward breakouts, place a stop below the lowest valley if it’s not too far away. For downward breakouts, a stop above the right peak works well.
Reversal	Descending scallops acting as reversals of the prevailing price trend tend to do best.

Descending scallop chart pattern measure rule

The Measure Rule

Example

Descending scallop chart pattern example

Two descending scallop chart patterns appear in the chart above. The first one begins at point A and ends at B. The second begins at B and completes at C. In both descending scallops, the breakout is downward and that occurs when price closes below the low of the chart pattern. Notice the dome-shaped volume pattern in the AB scallop.