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Thomas Bulkowski’s successful investment activities allowed him to retire at age 36. He is an internationally known author and trader with 30+ years of stock market experience and widely regarded as a leading expert on chart patterns. He may be reached at

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Bulkowski's Broadening Bottoms

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For more information on this pattern, read Encyclopedia of Chart Patterns Second EditionEncyclopedia of Chart Patterns 2nd Edition book., pictured on the right, pages 11 to 27. That chapter gives a complete review of the chart pattern, compared to what is described below.

Updated with new statistics on 10/31/17.

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Click reverse symmetrical triangle to read about the Elliott wave version.

 

Broadening Bottom: Overview

The broadening bottom is one of those chart patterns that appears often, but you might want to avoid trading. The performance rank approaches the bottom of the list with a high break even failure rate. Its only redeeming value is the partial decline which does a good job of predicting an upward breakout.

The picture shows a broadening bottom with a partial rise, not a partial decline. Go figure.

A broadening bottom chart pattern appears
Broadening Bottom
Score your chart pattern for
performance by clicking here

 

Important Bull Market Results for Broadening Bottoms

Overall performance rank for up/down breakouts (1 is best): Not available yet
Break even failure rate for up/down breakouts: 16%; 26%
Average rise/decline for up/down breakouts: 44%; 15%
Median rise/decline for up/down breakouts: 21%; 11%
Throwback/pullback rate: 71%; 62%
Percentage meeting price target for up/down breakouts: 67%; 41%

The above numbers are based on 544 samples for upward breakouts and 374 for downward breakouts, using 654 stocks data from July 1991 to October 2017. See the glossary for definitions.

 

Broadening Bottoms: Identification Guidelines

CharacteristicDiscussion
Price trendDownward leading to the pattern. That is, the closing price at the trend start is above the close at the pattern's start.
ShapeHigher peaks and lower valleys -- a megaphone shape.
TrendlinesThe top trend line slopes upward, the bottom one slopes downward.
TouchesAt least five touches total, three peaks or three valleys should touch the associated trend line with two or more touches of the other trendline. Ideally, the second of three touches will touch (instead of coming 'close' to) the trendline. This avoids the identification problem where price forms a down-sloping channel with an upward spike at pattern's end. See the next section.
White spacePrice should cross the pattern from side to side, filling the area with price movement. See the next section.
VolumeUpward 64% (up breakouts) to 68% (down breakouts) of the time.
BreakoutCan occur in any direction (upward 59% of the time) and it happens when price pierces a trendline or moves above/below the end of the pattern.
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Broadening Bottoms: Two Examples

Broadening bottom bad

Here's an example of an identification mistake. I show the same time period in both halves of the chart.

In the left half, I show what appears to be a broadening bottom. Price trends downward into the pattern and then broadens out. Price touches the bottom trendline three distinct times (numbered) with the middle touch (2) falling a bit short of the line, but it's close enough. The top trendline has a two touches at the start (1, 2) and a few more at the end (3, 4). It looks like price is broadening out. But there's one problem.

It's not a broadening bottom.

If peak A touched the top trendline, then it would be a nicely shaped broadening bottom.

Look at the right half of the chart. Here I drew a channel, outlining price movement. Clearly this is not a broadening pattern. It's just a down trend followed by an up trend.

 

Broadening bottom good

Broadening Bottoms: A Good Example

Compare the prior example with this one, shown on the right.

Price crosses the pattern from side to side in minor high and minor low touches. This example has five touches on the top and three on the bottom.

Price fills the white space with movement.

It looks like a broadening pattern.

Point A shows a partial decline. Price drops but doesn't touch the bottom trendline before reversing and staging an immediate upward breakout in this example.

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Broadening Bottoms: Trading Tips

Consult the associated figure on the right.

Trading TacticExplanation
Measure ruleCompute the difference between the highest peak (A) and lowest valley (B) in the pattern to get the height. Add the height to the pattern's top (for upward breakouts, works 67% of the time) or subtract it from the pattern's bottom (downward breakouts, works 41% of the time). Or multiply the height by the "percentage meeting price target" (see above) and add it to the highest peak (A, upward breakout) or subtract it from the lowest valley (B, downward breakout) to get a price target, D or E, respectively. This works 75% (down breakouts) to 76% (up breakouts) of the time.
Intraformation tradeBuy when price rebounds off the lower trendline (C), and short at the top (A) when price heads down.
Buy at 3rd touchWhen price touches the bottom trendline for the third time (C) and begins rising, buy.
Short at the topWhen price touches the top trendline and begins falling (A), sell or sell short.
Partial riseA partial rise works 57% of the time.
Partial declineA partial decline works 74% of the time.
Price trendThe best performing patterns with upward breakouts are those with an intermediate-term (3-6 months) decline leading to the pattern (from the trend start).
Yearly rangeUpward and downward breakouts perform best when the breakout is within a third of the yearly low.
Volume trendDoes best when volume trends upward (within the pattern) for both breakout directions.
BreakoutThe breakout direction is upward 59% of the time.
Throwbacks and pullbacksBoth hurt performance when they appear. The links on the left define terms and these links discuss performance for throwback and pullbacks
Broadening bottom measure rule
The Measure Rule
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Bull Market Performance Over Decades
Breakout Direction1990s2000s2010s
Up (average)41%45%45%
Up (median)20%21%25%
 
Down (average)17%13%16%
Down (median)15%10%10%
 
Samples (up breakouts)112207225
Samples (down breakouts)96139140

Broadening Bottoms: Time Performance

The table on the right shows the performance of broadening bottom chart patterns in bull markets over the last three decades.

The 1990s had half the samples of more recent years so maybe that explains the performance difference for upward breakouts.

However, downward breakouts did best in the 1990s compared to more recent decades.

 

 

Broadening Bottoms: Example

Ascending triangle chart pattern example

The associated figure shows an example of a broadening bottom chart pattern on the daily scale. Price begins the broadening bottom at A and forms diverging peaks and valleys.

This example is not ideal because of the gap between peak B and the top trendline. In this example, however, it's close enough to qualify as a broadening bottom.

Notice that if you draw the top trendline to connect point B instead of C, the pattern would take on the appearance of a right-angled and descending broadening formation because the top trendline would be flat or nearly so. Also, price at E bounces to D and then makes a lower low at F. Point D looks like a partial rise which fails when the predicted breakout at F does not occur. This is one example of why trading broadening bottoms for profit is difficult, even if relying on a partial decline or partial rise.

At the end of the broadening bottom, C, a partial decline occurs which correctly predicts an upward breakout. This allowed astute traders early entry.

-- Thomas Bulkowski

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Other Broadening Bottom Examples

 

See Also

Written by and copyright © 2005-2017 by Thomas N. Bulkowski. All rights reserved. Disclaimer: You alone are responsible for your investment decisions. See Privacy/Disclaimer for more information. The only difference between this place and the Titanic is the Titanic had a band.