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Written by and copyright © 2005-2008 by Thomas N. Bulkowski. All rights reserved.
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...
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Important Bull Market Results
Overall performance rank for up/down breakouts (1 is best): 6 out of
23; 14 out of 21
Break even failure rate for up/down breakouts: 2%; 11%
Average rise/decline: 38%; 17%
Throwback/pullback rate: 50%; 57%
Percentage meeting price target for up/down breakouts: 69%; 58%
Identification Guidelines
|
Characteristic |
Discussion |
|
Price trend |
Can be up or down leading
to the pattern |
|
Shape |
A megaphone tilted up. Refer to the above figure. |
|
Trendlines |
Both trendlines slope upward.
The top one slopes more steeply than the bottom one. |
|
Touches |
At least three peaks and three
valleys should touch their respective trendline. |
|
Volume |
Irregular but trends upward
64% of the time. |
|
Breakout |
Downward 73% of the time. |
Trading Tips
|
Trading Tactic |
Explanation |
|
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. |
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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. |
|
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. The link on the left provides statistics and this
link gives additional
information. |
|
Throwbacks
and
pullbacks |
Throwback and pullbacks hurt postbreakout 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. |
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Measure rule for downward breakouts
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Measure rule for upward breakouts
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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.
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