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The roof pattern is one I discovered
in early 2005. I thought of it as a half diamond but a friend called it a roof pattern and
that’s more descriptive.
I found 203 roofs in 500 stocks from July 1991 to July 1996. That’s one pattern for
every 12 years of data, which makes
it a rare one indeed. Since it’s performance is dreadful, it’s not one you
should concern yourself with.
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 Roof chart pattern
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Important Bull Market Results
Overall rank: 17 out of 21
Break even failure rate: 13%
Average decline: 16%
Pullback rate: 56%
Percentage meeting price target: 68%
Identification Guidelines
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Characteristic |
Discussion |
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Daily or weekly chart |
Use the daily or weekly chart
to locate roof patterns. |
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Price trend |
Usually upward leading to
the pattern. |
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Shape |
Has a horizontal or near horizontal
bottom with up sloping trend in the first part of the pattern followed by a down-sloping trend in the last part of the pattern. |
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Uptrend |
The best performing roof patterns
appear after a sharp rise like you sometimes see in diamond patterns |
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Symmetrical |
The two halves of the roof
should appear symmetrical. Allow variations, but most look like an inverted V with
price touching the horizontal bottom often. |
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Head-and-shoulders top |
Make sure the pattern isn’t
a head-and-shoulders top or a complex H&S top. |
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Confirmation |
The pattern confirms as valid
when price closes below the lowest price in the pattern. |
Trading Tips
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Trading Tactic |
Explanation |
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Measure rule |
Compute the height (the difference between the
roof’s high, A, and the low,
B) and then multiply it by the above “percentage
meeting price target.” Subtract the result from the lowest low in the pattern
(B) to get a target. The Measure Rule figure to the
right shows the measure for a downward breakout. |
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Uptrends |
The best performing roofs appear
at the top of uptrends lasting less than 3 months in duration. A strong downtrend usually follows a sharp uptrend, returning
price back to (or slightly above) the launch point. |
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Confirmation |
Wait for confirmation before placing
a trade because the breakout can be upward (but it’s rare, occurring just 17% of the time) |
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Pullbacks |
Pullbacks hurt performance. |
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Height |
Tall patterns outperform short ones.
Measure the height from highest peak to the horizontal bottom and divide it by the price of the horizontal bottom (the breakout
price). Height to breakout price values over 8.82% are considered tall. |
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 The Measure Rule
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Example
The above figure shows an example of a roof chart pattern. This is an unusual one because it has an upward breakout.
However, it was so well defined, that I just had to show you. Aren’t you impressed?
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