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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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Busted
Patterns
Candles Chart
Patterns
Event
Patterns
Small Patterns
Market
Industrials (^DJI):
Transports (^DJT):
Utilities (^DJU):
Nasdaq (^IXIC):
S&P500 (^GSPC):
As of 03/23/2017
20,657 -4.72 0.0%
8,936 -51.04 -0.6%
703 -1.87 -0.3%
5,818 -3.95 -0.1%
2,346 -2.49 -0.1%
YTD
4.5%
-1.2%
6.5%
8.1%
4.8%
Tom's Targets    Overview: 03/14/2017
21,250 or 20,600 by 04/15/2017
9,500 or 8,700 by 04/15/2017
675 or 715 by 04/01/2017
5,950 or 5,650 by 04/15/2017
2,425 or 2,325 by 04/15/2017
Mutt Losers: None YTD
Mutt Winners: None YTD

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.

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.

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

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 comparatively high break even failure rank and low average rise in a bull market. Its only redeeming value is the partial decline which does an excellent job of predicting an upward breakout.

 

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): 17 out of 23; 17 out of 21
Break even failure rate for up/down breakouts: 10%; 16%
Average rise/decline: 27%; 15%
Throwback/pullback rate: 41%; 42%
Percentage meeting price target for up/down breakouts: 59%; 44%

The above numbers are based on hundreds of perfect trades. See the glossary for definitions.

Broadening Bottom Identification Guidelines

CharacteristicDiscussion
Price trendDownward 85% of the time leading to the pattern.
ShapeHigher peaks and lower valleys – a megaphone shape.
TrendlinesThe top trend line slopes upward, the bottom one slopes downward.
TouchesAt least two peaks and two valleys should touch the associated trend line.
VolumeUpward 57% to 58% of the time.
BreakoutCan occur in any direction (upward 53% of the time) and it happens when price pierces a trendline or moves beyond the end of the pattern.
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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. 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.
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 67% of the time.
Partial declineA partial decline works 80% of the time.
Price trendThe best performing patterns with upward breakouts are those with a short-term (less than three months) decline leading to the pattern.
Yearly highUpward breakouts perform best when the breakout is within a third of the yearly high. Downward breakouts excel within a third of the yearly low.
Volume trendUpward breakouts: do best when volume trends downward; downward breakouts do best when volume trends upward.
BreakoutThe breakout direction is upward 53% 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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Broadening Bottom 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. At the end of the broadening bottom, C, a partial decline occurs which correctly predicts an upward breakout. This allowed astute traders early entry.

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.

-- 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.