Advertisement

Horn Tops

Advertisement
horn tops chart pattern

Horn Tops occur after an uptrend and consist of two taller than normal price spikes with roughly equivalent high prices (on a weekly chart) with a smaller price bar in between them. The pattern looks like two horns of a bull or the letter "H". A sell signal is triggered when price closes below the lowest low of the three price bars that create the horn top pattern.

Horn Bottoms

Advertisement
horn bottoms chart pattern

In contrast, a Horn Bottom occurs after a downtrend and consists of two taller than average weekly price spikes with similar low prices separated by a smaller price bar in between. A buy signal is triggered when prices close above the highest high in the pattern. When compared to the quite similar pipe bottom and pipe top formations, Kirkpatrick & Dahlquist (2010) state that horn tops are "not as effective as the pipe at bottoms and tops" (p. 375).

Horn Tops Average Downward Breakout Decline

red down arrow illustrating a 21% decline

According to Bulkowski (2005), the average height of a move downward after a sell signal is triggered for the horn top formation and before any 20% reversal correction is 21%;

Horn Bottoms Average Upward Breakout Gain

green up arrow showing 35% gain

The average height of a move upward after a buy signal is triggered for the horn bottom formation is 35%.

Price Targets

The suggested price target for horn tops and horn bottoms given by Bulkowski (2005) is shown below:

Horn Bottom Breakout Upward: Highest of the Three Price Bar Highs + ((Highest of the Three Price Bar Highs - Lowest of the Three Price Bar Lows) * 70%)
Horn Top Breakout Downward: Lowest of the Three Price Bar Lows - ((Highest of the Three Price Bar Highs - Lowest of the Three Price Bar Lows) * 76%)

Traits that Increase the Effectiveness of the Horn Top and Bottom

Traits that increase the effectiveness of the pipe pattern are given next (Bulkowski, 2005):

  • Horn Tops perform best when they occur after a long, multi-month uptrend
  • Horn Tops should be avoided when they occur after a downtrend
  • Tall Horn Bottoms are superior than shorter Horn Bottoms
  • Horn Bottoms with heavy breakout volume perform better

Horn Bottom Chart Example

stock etf chart example of horn bottom

The weekly chart of the iShares MSCI Spain ETF (EWP) illustrates a horn bottom. It occurs after a downtrend; the prices before and after the horn bottom pattern are near the upper portion of the horn bottom pattern, which means that the pattern stands out on a chart. Once prices close above the highest high of the pattern, a buy signal is triggered, which in this chart resulted in a nice reversal of trend to the upside.

Works Referenced

  1. Kirkpatrick II, C.D., & Dahlquist, J.R. (2010). Technical Analysis: The Complete Resource for Financial Market Technicians (2nd ed.). Upper Saddle River, NJ: FT Press.
  2. Rockefeller, B. (2011). Technical Analysis For Dummies (2nd ed.). Hoboken: John Wiley & Sons.
  3. The Pattern Site. (2008). Bulkowski's Measure Rule. Retrieved June 1, 2012, from http://thepatternsite.com/measure.html
  4. The Pattern Site. (2005). Bulkowski's Horn Bottoms . Retrieved June 1, 2012, from http://thepatternsite.com/hornb.html
  5. The Pattern Site. (2005). Bulkowski's Horn Tops . Retrieved June 1, 2012, from http://thepatternsite.com/hornt.html