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I have been asked to comment about the statistics in my book, Encyclopedia of Chart Patterns, specifically, the failure rate for symmetrical triangles. I separated STs into tops and bottoms, thinking there might be a performance difference. There is, but probably not statistically different. For triangle tops, upward breakouts, the failure rates are as follows (from page 568 plus column results from Figure 41.6 on page 569):
Benchmark, failure rate
5%, 5%
10%, 13%
20%, 40%
30%, 54%
40%, 67%
For example, 40% (the failure rate) of the symmetrical triangles failed to climb more than 20% (the benchmark). The results use 162 patterns in 500 stocks from mid 1991 to mid 1996 measuring from the low price on the breakout day to the highest daily high before a 20% price decline, measured high to low.
More recent research but preliminary results on 354 patterns gives the following:
5%, 5%
10%, 15%
20%, 39%
30%, 54%
40%, not available
The results are similar despite 2x more samples and also for tops and bottoms combined, not just ST tops.
Another way to measure the failure rate is what's called the Horizon Failure Rate, but David Ipperciel.
1 wk: 9%
2 wks: 17%
3 wks: 19%
1 mos: 24%
2 mos: 31%
This looks at the price rise over time. For example, at the end of 3 weeks, 19% of the stocks had closing prices below the breakout price.
As to personal information, I have been trading stocks for over 20 years, chart patterns for about half that. My first PUBLISHED trade was in the April 1996 issue of Stocks & Commodities mag involving, you guessed it, a symmetrical triangle. I made 27% in 4 wks. Not bad, but down from 40% because I delayed a trading day to push profits into a new year. Please direct questions to tbul@xxxxxxxxxxx, but I only get to the internet once a month.
-- Thomas BulkowskiGet your FREE download of MSN Explorer at http://explorer.msn.com
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