Bulkowski’s Ascending Broadening Wedge

Written by and copyright © 2005-2009 by Thomas N. Bulkowski. All rights reserved.

During writing of my book, Encyclopedia of Chart Patterns, Second Edition, I thought of broadening tops and bottoms then wondered if similar patterns would appear if the megaphone shape were tilted up. That is how I discovered the ascending broadening wedge chart pattern. I am not claiming to be the first one to identify it. The list of chart pattern analysts is long and chart patterns have been around for decades. Certainly someone before me probably discovered them.

The ascending broadening wedge is a chart pattern that tends to disappear in a bear market. Most often, you'll find them in a bull market with a downward breakout. For more information see pages 81 to 97 of the book Encyclopedia of Chart Patterns, Second Edition and read the following...

Important Bull Market Results

Identification Guidelines

Trading Tips

Trading Tactic	Explanation	Measure rule for downward breakouts
Measure rule	Refer to the two figures on the right. For downward breakouts, use the lowest valley in the pattern as the target. For upward breakouts, compute the difference between the highest peak (point A) and lowest valley (B) in the pattern to get the height. Multiply the height by the above “percentage meeting price target” and add it to the breakout price ( A) to get the price target (C).
Intraformation trade	Since the bottom trendline slopes upward, do not short this pattern at the top trendline. Go long at the bottom when price bounces off the bottom trendline, heading up.
Buy at 3rd touch	When price touches the bottom trendline for the third time and begins rising, buy. This is for aggressive traders because the breakout is often downward.
Partial rise	A partial rise works 74% of the time. See the link on the left for more information.
Partial decline	A partial decline works 35% of the time. See the link on the left for more information.	Measure rule for upward breakouts
Price trend	For upward breakouts, the best performing patterns are those with a short-term (less than three months) move leading to the pattern. Downward breakouts do better with a long-term move (over six months) leading to the pattern.
Yearly low	Downward breakouts perform best when the breakout is within a third of the yearly low. For upward breakouts, performance is constant among the three ranges (high, middle, and low). The link on the left provides statistics and this link gives additional information.
Throwbacks and pullbacks	Throwbacks and pullbacks hurt post breakout performance. The links on the left define throwbacks and pullbacks. These links for throwbacks and pullbacks discuss performance.
Continuations	76% break out in the same direction as that leading to the pattern.

Example

The above figure shows an example of the ascending broadening wedge chart pattern. The only thing remarkable about this wedge is that a partial decline occurs after the breakout. Technically, that means a partial decline did not occur (because it is after the breakout), but it sure looks pretty on the chart.

Other Examples

• S & P 500 shows an ascending broadening wedge in Aug-Nov 2009.
• Dow Industrials shows an ascending broadening wedge in late 2009.

-- Thomas Bulkowski