Encyclopedia of Chart Patterns. Thomas N. Bulkowski

Up Breakout Winner Gap (68%) Tie (50%) Performance 45% G, 42% N 28% G, 28% N Bull Market, Down Breakout Bear Market, Down Breakout Winner Gap (85%) Gap (57%) Performance –16% G, –15% N –23% G, –22% N

Table 1.4: Breakout day gap. Do gaps that occur on the day of breakout help performance?

      Winner, Performance. After downward breakouts in bull markets, I found that 85% of the chart pattern types showed a gap helping performance. The chart patterns dropped an average of 16% versus 15% for those not showing a breakout gap.

      Notice that the percentages on the performance line are close, suggesting gaps are not a strong performance indicator, either. Because I measure performance using the opening price the day after the breakout day gap, you can participate in the better performance that a gap may provide.

      Table 1.5: Throwbacks and pullbacks. Throwbacks and pullbacks are features I love. When they appear, they invariably hurt performance. The table shows the blood. A throwback happens after an upward breakout from a chart pattern when price soars but then returns to the breakout price (or comes close to it) within a month. Pullbacks are the same except the breakout is downward.

      Winner, Performance. For example, 97% of the time I found that throwbacks hurt performance after upward breakouts in bull markets. In contests of patterns with downward breakouts in bear markets, all of them (100%) showed that pullbacks hurt performance. The average decline of those contests was 26% for those patterns not showing a pullback (N) and 20% for those that did pull back (P). For a downward breakout, that's a wide difference.

Table 1.5 Throwbacks (T) and Pullbacks (P) versus None (N)

	Bull Market, Up Breakout	Bear Market, Up Breakout
Winner	Throwbacks (97%)	Throwbacks (89%)
Performance	40% T, 48% N	25% T, 33% N
Occurrence	64%	65%
	Bull Market, Down Breakout	Bear Market, Down Breakout
Winner	Pullbacks (91%)	Pullbacks (100%)
Performance	–14% P, –17% N	–20% P, –26% N
Occurrence	64%	63%

Occurrence. The Occurrence line in the table shows how often a throwback or pullback occurred, on average. Throwbacks and pullbacks happen almost two out of three times (63% to 65%).

      Table 1.6: Rising or falling volume. The table shows how patterns behave if volume is rising or falling from the start of the pattern to the end, found using linear regression.

      Winner. For upward breakouts, performance improves just over 60% of the time if volume is rising. Downward breakouts are mixed with bull markets in patterns showing falling volume doing best but bear markets show a tie.

      Performance. The performance numbers are close, though, especially for downward breakouts. For example, patterns with rising volume (R) saw price climb 44% to the ultimate high (bull market, up breakout). Patterns with falling volume (F) showed gains averaging 42%. The volume trend is not a good predictor of future performance.

      I think technical analysts put too much emphasis on volume. (Consider that for every share sold, one is bought. If institutions are selling massive amounts of shares, then other institutions are buying those shares.)

      Table 1.7: Heavy versus light breakout day volume. I compared breakout day volume with the prior month.

Table 1.6 Rising (R) versus Falling (F) Volume

	Bull Market, Up Breakout	Bear Market, Up Breakout
Winner	Rising (62%)	Rising (61%)
Performance	44% R, 42% F	29% R, 27% F
	Bull Market, Down Breakout	Bear Market, Down Breakout
Winner	Falling (56%)	Tie (50%)
Performance	–15% R, –15% F	–22% R, –22% F

Table 1.7 Heavy (H) versus Light (L) Breakout Day Volume

	Bull Market, Up Breakout	Bear Market, Up Breakout
Winner	Heavy (79%)	Heavy (79%)
Performance	43% H, 41% L	29% H, 26% L
	Bull Market, Down Breakout	Bear Market, Down Breakout
Winner	Heavy (67%)	Light (55%)
Performance	–15% H, –15% L	–22% H, –22% L

      Winner, Performance. The table shows that heavy breakout day volume suggests better performance most of the time. For example, I found that 79% of the time after upward breakouts in bear markets, high volume led to better performance by 29% (for heavy volume) versus gains averaging 26% for patterns with light breakout day volume.

      You will notice that the percentage difference is not great, especially after downward breakouts (which show ties). Breakout volume is not as good a predictor of performance as many believe.

      Table 1.8: Trend change. This table is different from the others. It shows how often price continues