How often is a stop under the breakout-day low hit?

In Bulkowski’s study of 3,068 upward breakouts, a stop 2 cents below the breakout-day low was hit within a month 61.5% of the time, with an average loss of 2.19%.

Thomas Bulkowski

Chart-pattern researcher; author of “Encyclopedia of Chart Patterns”; his statistics are on thepatternsite.com

AA — the trader’s own published text (rule document, own site) was read.

Statistics of chart patterns and of stop placement. Rather than a trading style, he publishes measurements. Two of his pages show where a stop placed after an upward breakout is hit, and give a list of stop locations by pattern.

A published rule is a hypothesis, not evidence of profit. We do not know how often these rules won, and traders who publish their methods are the ones who survived.

Sources

Stops, Part 2 (thepatternsite.com) — own site
A study on July 1991 – July 2008 data; the page is old.
Bulkowski on Best Stop Locations (thepatternsite.com) — own site

Rules

Stop

StopPlace the initial stop where pullbacks rarely reach, usually just beyond a support or resistance zone or a key swing point (often “a few pennies” beyond a high or low). When that point is far from the current price, use a volatility stop instead.
[2]
StopStudy of 3,068 breakouts upward from ascending triangles, double bottoms and rectangles (US stocks, 1991–2008): price fell below the breakout price about 80% of the time, by 5.3% on average (median 4.2%), and the lowest low came about 11 days after the breakout on average.
[1]
StopA stop 2 cents below the breakout-day low was hit within a month 61.5% of the time with an average loss of 2.19%; a stop below the lowest low of the previous 10 days was hit 14.9% of the time with an average loss of 7.53%.
[1]
StopShare of samples that did not drop beyond each level in the first month: 48% at 4%, 75% at 8%, 89% at 12%. Tight stops under 4% were hit about half the time.
[1]
StopExamples by pattern: double bottom, a penny below the lower bottom; cup with handle, a nickel or so below the handle’s lowest valley; rectangle, a few pennies below the bottom for an upward breakout; flags and pennants, at the bottom of the pattern.
[2]
StopFor an ascending broadening wedge broken upward, a stop 67% of the way down the latest swing low-to-high held about two-thirds of the time, he reports.
[2]

Exit

ExitA trailing stop raised as price rises and never lowered gave an average rise of 2.42% (look-back 0 days) up to 5.66% (10 days); a volatility trailing stop matched the 5-day look-back at 3.73%.
[1]

Not confirmed

Often attributed to this trader, but not found in the sources above. Not listed as his or her rules.

Which patterns have the best success rates is covered on other pages of his site and in his books; those figures were not read for this list.

Limits of these rules

US stocks, 1991–2008, upward breakouts only; the figures are descriptions of the past and costs and gaps are not part of the stop test. Treat them as ranges to think with, not as parameters.

Other traders

Rules are our paraphrase of the sources; only short quotes are verbatim. This is information, not advice or a promise of profit.