Horn Tops & Bottoms Pattern - How To Find and Trade ThemHorn patterns are reversal patterns introduced by Bulkowski in his book "Encyclopedia of Chart Patterns". These reversal patterns are not the most commonly used by traders but have very interesting characteristics.
In this post, we will cover details about these interesting patterns, such as identification rules and measure rules.
1. Origin
Bulkowski discovered horn patterns by studying double tops/bottoms patterns. In his study, he noticed that narrower double bottoms performed better than widely spaced ones, and as such wondered how would perform double bottoms spaced by a single week on a weekly chart.
The usage of the weekly timeframe is based on ease of selection and performance considerations, but horn patterns are also visible on the daily timeframe.
2. Identification
Horn patterns are relatively easy to identify. The identification of both horns' tops/bottoms should be done on the weekly timeframe.
2.1 Horn Tops
The horn tops pattern is characterized by two price highs situated at a similar level, both separated by a candle whose price high is lower than the two adjacent. These can occur in an uptrend but also on the top of downtrend retracements.
In an uptrend, this pattern should be clearly visible with prior highest highs inferior to the pattern high.
2.2 Horn Bottoms
The horn bottoms, also referred to as "inverted horns" pattern is characterized by two price lows situated at a similar level, both separated by a candle whose price low is higher than the two adjacent. These can occur in a downtrend but also on the bottom of uptrend retracements.
In a downtrend this pattern should be clearly visible with prior lowest lows superior to the pattern low.
3. Trading
Because of the usage of the weekly timeframe, we can see that trading horn patterns can be more suited to longer term investors.
Two approaches can be used when trading horn patterns, trading on identification, that is when the pattern is clearly identified, or trading on confirmation, the latter is the one covered by Bulkowski.
A horn top pattern is confirmed when the price breaks below the minimum of the pattern formation, while a horn bottom pattern is confirmed when the price breaks above the maximum of the pattern formation.
3.1 Measure Rule
The measure rule for horn patterns allows traders to set stop losses and take profit according to the pattern.
For horn bottoms patterns the target price is found by adding the formation height (maximum - minimum) to the formation maximum.
For horn top patterns the target price is found by subtracting the formation height (maximum - minimum) to the formation minimum.
