Have you ever walked on the beach? If you look closely, you will see scallop shells of all colors in the sand. Sometimes you will see a scallop, and when you open it, you will find a pearl.
Now, if you go back home and enter the market, you will see that scallops produce “pearls” and patterns in the market, which are likewise very valuable. You don’t need to go to the beach and search. Our pearls in this analogy are our profits. I made a $30,000 profit in 2021 just by using the scallop pattern on the chart.
Ascending Scallop Pattern
Ascending Scallop is a continuation pattern that forms in the middle of upward trends, and the price continues its momentum upward.
Scallops on the beach have different shapes and colors. In the financial market, there are also scallops with various forms. Let’s learn about what they look like.
To form this pattern, the price hits a resistance area, and sellers do not allow the price to rise. Here, the price makes a top called A and returns down from the resistance area. The price momentum decreases, and bottoms form at closer prices.
The price no longer makes lower bottoms and forms a correction zone at this price. The price rises again, and the momentum increases. The price reaches the resistance area for the second time. The price forms a neckline with the previous top A.
To determine this neckline, we draw a horizontal line from top A. The price usually passes this horizontal line easily. In this situation, an ascending scallop pattern indicates that the price will rise again because the buyers have entered with more strength.
This pattern has a shape like a J-letter. According to Bulkowski, after rising and making the second major top called B, 50% of the time, the price goes down again; the target of the price is to reach the neckline for the last kiss, then the price will rise again, and continue its bullish trend.
Some traders also call this pullback the “handle.” The critical point to distinguish between the scallop pattern and the cup and handle pattern is that in the cup and handle pattern, the major pivot of B is in the same price zone as the pivot of A.
In other words, the price fails to break the resistance zone for the second time in the cup and handle pattern; however, in the scallop pattern, the price breaks the resistance zone on the second try, and the major pivot of B forms at a higher price.
The ascending scallop pattern is prevalent in one-sided markets, such as stocks, and two-sided markets, such as forex and cryptocurrency, because it is widely found in these markets.
In the ascending scallop pattern, the market volume decreases at first, i.e., on the left side of the correction, and then the market volume increases in the ascending part or the right side of the correction. When the price breaks the neckline, the market volume reaches its maximum.
Trade on the Ascending Scallop Pattern
There are two methods to profit from this pattern. 1st method: After breaking the neckline (a horizontal line at the price of the top A), you can enter the position. Be sure that the price breaks the neckline with a valid breakout candle.
After closing the breakout candle above the neckline, you can enter a long position and place the stop loss below the lowest price in the correction zone. Of course, there are other ways to set the stop loss; you can place it under the breakout candle to achieve a higher risk-to-reward ratio.
The take profit in this method equals the distance from the neckline to the lowest bottom of the correction zone – an excellent position with a high risk-to-reward ratio. You should be aware that if the breakout of the neckline occurs with a long candle and a valid breakout, the credibility of the breakout will increase.
Because the risk associated with such positions is high, you shouldn’t enter the position until you have confirmed the true breakout.
If you are a bit conservative and not interested in high risks, you can choose another method I will teach you. 2nd method: You don’t enter the long position after the neckline breakout.
You can instead wait until the price rises, passes the resistance zone, and makes a major top, which we call B, or breaks the previous major top, which signals that the price will rise more.
But how should you enter the position in this case? You have to wait for the price to pull back to the neckline. The price will touch the neckline for the last time (what we call the “last kiss”) and go up again.
You can place a long position as a limit at the neckline zone so that it activates if the price reaches this area. Alternatively, you can wait for a reversal candlestick pattern in this area and then enter a long position. For more certainty, put the stop loss below the lowest price of the correction or below the last minor pivot before the neckline.
The take profit in this method is more than the previous one because the take profit is equal to the distance from the highest price in the pattern or the top B to the lowest price in the correction. Therefore, with this mode, the position’s risk is reduced, and the profit size is higher.
Let’s take a look at an example. Pay attention to my long position on EUR/USD in the daily time frame.
After breaking the neckline, I waited for the breakout candle to close above the neckline. After that, I entered a long position at 1.15600 USD and placed the stop loss below the breakout candle at 1.14100 USD. I chose the distance from the neckline to the lowest price in the correction zone for the take profit in this position, and I set it at 1.18200 USD – resulting in a profit of $7800.
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Descending Scallop Pattern
Descending Scallop is a continuation pattern that forms in the middle of the downward trends, where the price continues its bearish trend after that.
This pattern is the inverse mode of the scallop pattern, but it has essential points you should know. Stay with me, and I will teach you where in the market you can find this pattern and get the most profit from it.
The price reaches a support zone and goes up in a downward trend. In this area, the price forms a bottom called A, and the price enters a correction. At first, the momentum is high, but the momentum decreases over time. The price forms a major wide top and enters a downward trend. We draw a horizontal line from the major bottom of A, which we call the neckline.
The price passes this line easily and falls. You can enter a short position on this pattern in two-sided markets such as forex or cryptocurrency and profit from it. In one-sided markets like stocks, it is a kind of signal to continue the bearish trend.
According to Bulkowski, when the price passes the neckline and falls, 50% of the time, the price goes up again, and the price makes the second major bottom called B; the target of the price is to reach the neckline for the last kiss, then the price will fall again and continue its bearish trend.
Some traders call this pullback “the handle” because it looks like the handle in the inverted cup and handle pattern, but there is an important point to distinguish between these two patterns. In the inverted cup and handle, the bottom of B is in the same area as the bottom of A. However, in the scallop pattern, the bottom of B is in lower prices.
In the descending scallop, the market volume decreases at the left side of the correction or the ascending part, and then the market volume increases on the right side of the correction. When the price breaks the neckline, the market volume reaches its maximum.
The shape of this pattern is like an inverted J-letter, which we know is a strong bearish pattern. This makes it easy for you to identify the inverted scallop.
Trade on the Descending Scallop Pattern
There are two ways that you can open a position on this pattern. 1st method: When the price crosses the neckline and the breakout candle closes below it, you can enter the short position and place the stop loss above the breakout candle. Be sure that the price breaks the neckline with a valid breakout candle.
The take profit, in this case, equals the distance from the neckline to the highest price of the correction. This method is suitable for those who do not wait for a pullback to the neckline. This is because according to Bulkowski, there is a 50% chance that the price will not pull back to the neckline.
The second method: In this case, the trader waits for the price to come down a little more and does a pullback to the neckline; the price makes a major bottom which we call the bottom of B. In this situation, when the price pulls back to the neckline, you can enter a short position.
You can place a short position as a limit in the neckline area and place the stop loss above the highest top in the correction or above the last minor pivot. Alternatively, you can use bearish reversal candlestick patterns. When the price returns to the neckline range, you can enter a short position after forming a bearish reversal candlestick pattern and make a good profit from the market.
The take profit in this pattern is more than the previous method because you can consider the distance from the bottom of B to the highest price in the correction as the size of the take profit.
Let’s look at my position on GBP/USD in a 1-hour time frame.
I usually don’t wait for the pullback, and I enter the position after the breakout of the neckline with a valid breakout candle. When the price broke the neckline and the breakout candle closed below the neckline, I entered a short position at 1.12150 USD and placed my stop loss above the breakout candle at 1.12750 USD.
My take profit in this position was equal to the distance between the neckline and the highest price in the correction, and I set it at 1.10800 USD. I made a profit of 9000 dollars in this position.
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Bulkowski is one of the most prominent researchers in classical patterns. This scientist researched many patterns during his life and obtained vital statistics, including using scallop patterns.
In this section, I want to express this necessary research simply so you can use it and increase your profit percentage. According to Bulkowski, for the best results in ascending scallops, it is better to place the target at 62% of the distance between the neckline and the lowest bottom in the correction.
He also made some interesting observations regarding the descending scallop pattern. According to Mr. Bulkowski, for the best win rate and the most profit, it is better to set the target of the descending scallop to 52% of the distance from the neckline to the highest top in the correction.
If you can find this beautiful pattern in the market, it is worth taking a risk. I have pointed out in all my articles that money management is very important, so be sure to follow those principles so as not to incur irreparable losses in the future. Now that you know how to make the most of this pattern, I hope you find many scallops on the beach of the market.
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