Definition
Failure rate is the share of occurrences in which a chart pattern does not produce its expected outcome. A common definition counts a pattern as a failure when price moves less than a small threshold, often around five percent, in the anticipated direction after the breakout.
Expressed as a percentage, the failure rate lets a trader compare patterns on the same scale: a formation with a five percent failure rate is far more dependable than one that fails a third of the time.
Why it matters
How it works
Failure rates are derived by cataloguing many historical instances of a pattern, tracking each from its confirmation point, and recording how often the expected move fell short. The result is a population statistic, not a forecast for any single trade.
A trader uses failure rate alongside other measures. A pattern with a low failure rate and a large average gain is attractive; a pattern with a high failure rate may still be usable with a tight stop, since a failed pattern often busts and can be traded in the opposite direction.