Chart Patterns
Head and Shoulders, Double Tops, Triangles, Wedges and Flags in Stock Trading — What Really Happens After the Break
You spotted the pattern. What does price really do next?
Ascending triangles broke down more often than up. One simple rule explains why.
Head and shoulders, double tops, triangles, wedges, and flags: every trading book teaches the same shapes and the same rules. Wait for the break, measure the target, put the stop at the far end. Almost nobody checks what price actually does after the pattern forms.
This book does. More than 32,000 chart patterns were found by one fixed set of rules on 3,399 American stocks across more than twenty years, including more than 1,600 companies that failed or were bought out. Each one was counted from the day a trader could first see it, not from the break, so the results include the patterns that textbook tables leave out.
Much of what you've been taught holds up. Some of it will surprise you: descending triangles broke up two times in three, and the same simple rule that explains the triangles explains the wedges too.
The findings then become practical tools: telling a pattern that has formed from one that has broken, reading any triangle or wedge by the one line price usually breaks, setting targets in ordinary days and taking part of the profit at a mark price reached about three times in four, placing stops that survive ordinary noise, and sizing every position to its stop so no single pattern can do real damage.
Part I teaches each pattern step by step, the way traders learn them. Part II shows what price actually did after them. Part III turns the findings into stops, targets, and a routine you can run on any chart in a few minutes.
What the counts found
- Wait for the break: about half of head and shoulders tops, and six double tops in ten, never broke the line at all
- Expect the throwback: about four in five head and shoulders and double top breaks came back to the pattern line
- Bottoms beat tops: inverse head and shoulders reached the measured target after 62 percent of breaks, against 46 percent for tops; double bottoms 71 percent against 63
- Wedges break the way the book says: rising wedges broke down 74 percent of the time, falling wedges broke up 82 percent
- Flags move fast: breaks typically came within two or three days, and most kept going
- A stop tucked just past the pattern line was hit seven times in ten, and in more than a quarter of trades price went on to the target after the stop was hit
- Heavy volume on the break made breaks sturdier, and the book shows why that isn't special to patterns
Three parts and 35 charts and diagrams.
Look inside
A few pages from the paperback. Select a page to see it full size.
- The contents
- The opening of Chapter 1
- Figure 2.1: a head and shoulders top
- Figure 8.1: a real head and shoulders in NVIDIA
Who it's for
Traders learning their first head and shoulders, and experienced pattern traders who have wondered why the patterns don't always work the way the books promise.
