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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 Tops

Class Elliott Wave Fundamentals Psychology Quiz Research Setups Software Tutorials More...
Busted
Patterns
Candles Chart
Patterns
Event
Patterns
Small Patterns
Market
Industrials (^DJI):
Transports (^DJT):
Utilities (^DJU):
Nasdaq (^IXIC):
S&P500 (^GSPC):
As of 09/23/2016
18,261 -131.01 -0.7%
7,937 -26.13 -0.3%
694 -2.05 -0.3%
5,306 -33.77 -0.6%
2,165 -12.49 -0.6%
YTD
4.8%
5.7%
20.1%
6.0%
5.9%
Tom's Targets    Overview: 09/15/2016
17,800 or 18,600 by 10/01/2016
8,275 or 7,500 by 10/01/2016
710 or 650 by 10/01/2016
5,400 or 5,100 by 10/01/2016
2,080 or 2,225 by 10/01/2016

Written by and copyright © 2005-2016 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 63 to 80. 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.

Broadening Top Overview

Like the broadening bottom, the broadening top is a poor performer, especially in a bull market. The break even failure rate is high and the average rise is meager. Partial rises and declines help predict the breakout direction and allow a trader to enter the stock sooner, but also increases the risk of failure.

Broadening top chart pattern appears
Broadening Top
Score your chart pattern for
performance by clicking here

Important Bull Market Results for Broadening Tops

Overall performance rank for up/down breakouts (1 is best): 19 out of 23; 18 out of 21
Break even failure rate for up/down breakouts: 15%; 18%
Average rise/decline: 29%; 15%
Throwback/pullback rate: 54%; 48%
Percentage meeting price target for up/down breakouts: 62%; 37%

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

Broadening Top Identification Guidelines

CharacteristicDiscussion
Price trendUpward leading to the pattern.
ShapeHigher peaks and lower valleys – a megaphone shape.
TrendlinesThe top trendline slopes upward, the bottom one slopes downward.
TouchesAt least two peaks and two valleys should touch their respective trendlines.
Volume shapeUpward, often U-shaped. The link on the left shows an example.
BreakoutCan occur in any direction (upward 49.6%, downward 50.3%) and it happens when price pierces a trendline or moves beyond the end of the pattern.
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Broadening Top 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 61% of the time.
Partial declineA partial decline works 72% of the time
Price trendThe best performing patterns are those with an intermediate-term (three to six months) rise leading to the pattern, regardless of the breakout direction.
Yearly lowThose with breakouts near the yearly low perform best, regardless of the breakout direction. The link to the left discusses performance, and the following link provides additional information.
Volume trendDownward for the best performance, regardless of the breakout direction.
BreakoutThe breakout direction is downward 50.3% of the time.
Throwbacks and pullbacksThrowbacks hurt post breakout performance when they appear, but pullbacks show no influence.
Broadening top measure rule
The Measure Rule
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Broadening top chart pattern example

Broadening Top Example

The above figure shows an example of a broadening top chart pattern. A quick rise starts at A and leads to the broadening top chart pattern. Price oscillates up and down in broadening turns before dropping out of the bottom of the chart pattern and staging a downward breakout. A pullback ensues, allowing price to recover and traders to exit before the decline resumes. Price attempts to return to the launch point A in late September, but does not make it.

-- Thomas Bulkowski

 

 

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Other Broadening Top Examples

See Also

Written by and copyright © 2005-2016 by Thomas N. Bulkowski. All rights reserved. Disclaimer: You alone are responsible for your investment decisions. See Privacy/Disclaimer for more information. You don't make sense often. Today might be the day.