Pre-breakout filters for classic chart patterns

Score the finished silhouette

A double top and bottom is a paired peak or trough formation whose height, Adam-versus-Eve shape, and breakout price can be scored before treating the completed structure as a long or short hypothesis. Head and shoulders is a three-swing reversal structure, top or bottom, whose breakout can be graded with the same pre-trade filters used on other classic patterns, including a volume split that the review found unique to tops. A triangle pattern is a contracting range, ascending, descending, or symmetrical, whose breakout direction is only the first check; height, capitalization, and incoming trend still decide whether the setup is kept.

A 1991 to 2001 review of nearly 7,500 samples from 13 bullish and 13 bearish chart-pattern types tested which setup conditions ranked as the strongest post-breakout group. The ranked conditions used here are incoming trend length, yearly price third, pattern height ratio, breakout volume, and market capitalization band.

Measure trend start first

Trend start is the earlier turning point found by walking backward from the pattern until a 20 percent close-based reversal appears, then measuring how long that incoming move lasted. The incoming trend is a 20 percent rally from the lowest low when price enters from below, or a 20 percent decline from the highest high when price enters from above.

An incoming trend shorter than three months ranked first in eight upward-breakout pattern types and nine downward-breakout types. No downward-breakout type ranked a lead-in longer than six months first.

Read a partial rise on boundary lines

After both boundary lines have been touched at least twice, a partial rise is a lift from the lower line that never approaches the upper line before price returns to the lower line. That archive definition sits beside the five ranked filters; it describes a failed lift inside a contracting range rather than a keep-or-discard score on trend length, yearly location, height, volume, or size.

Place the breakout in a yearly price third

Yearly price third places the breakout price in the lowest, middle, or highest third of the prior year's high-low range. Using the breakout price inside that split, eight of 13 bullish types ranked strongest in the lowest third, while bearish types split between six strongest near the yearly low and seven strongest near the yearly high.

Compare pattern height ratio with the type median

Pattern height ratio is the pattern's high-to-low span divided by the breakout price, then compared with that pattern type's sample median to label the structure tall or short. Height compared this way ranked stronger when the ratio sat above the median in 11 of 13 bullish types and all 13 bearish types.

Adam and Eve structure is the naming split for double tops and bottoms: Adam swings are narrow and spiked, Eve swings are wide and rounded. One Eve-and-Eve double bottom with lows at 10.76 and a midpoint high of 12.44 produced a 13.5 percent height ratio, below the 16.39 percent median from 315 examples of that type, so it was classed as short.

Check for heavy breakout volume

Heavy breakout volume is breakout-day volume of at least twice the prior three-month average. That condition ranked as the stronger volume condition in 11 upward-breakout types and 10 downward-breakout types. Head and shoulders tops showed no split.

Band market capitalization at the breakout

Market capitalization band is breakout price times shares outstanding, grouped as small (up to 1 billion), mid (1 to 5 billion), or large (over 5 billion). Small-caps ranked first in 11 upward-breakout types and eight downward-breakout types. Only the downward symmetrical triangle ranked large-caps first.

Editorial keep-or-discard reading

TradersWeek editorial view: use the ranked conditions as a five-point audit that keeps or discards a completed silhouette, not as a forecast of the next move. Score incoming trend length from trend start, yearly price third, pattern height ratio versus that type's median, heavy breakout volume, and market capitalization band. The same double top and bottom, head and shoulders, or triangle pattern can fail the audit even when the outline looks finished.

A triangle pattern still needs height, capitalization, and incoming trend after breakout direction is known. A head and shoulders breakout, top or bottom, can take the same filters, with the volume split treated as unique to tops. A double top and bottom can be scored on height, Adam and Eve structure, and breakout price before the completed structure is treated as a long or short hypothesis.