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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

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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 11/21/2017
23,591 160.50 0.7%
9,615 92.77 1.0%
758 2.01 0.3%
6,862 71.77 1.1%
2,599 16.89 0.7%
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19.4%
6.3%
14.9%
27.5%
16.1%
Tom's Targets    Overview: 11/14/2017
23,700 or 22,800 by 12/01/2017
9,300 or 9,800 by 12/01/2017
800 or 750 by 12/01/2017
7,000 or 6,500 by 12/01/2017
2,625 or 2,540 by 12/01/2017

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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 63 to 80. That chapter gives a complete review of the chart pattern, compared to what is described below.

Updated with new statistics on 10/31/2017.

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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. The break even failure rate is high and the average rise is nothing to brag about. Partial rises and declines help predict the breakout direction and allow a trader to enter the stock sooner, but also increase 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): Not available yet
Break even failure rate for up/down breakouts: 18%; 26%
Average rise/decline for up/down breakouts: 40%; 14%
Median rise/decline for up/down breakouts: 21%; 10%
Throwback/pullback rate: 68%; 68%
Percentage meeting price target for up/down breakouts: 66%; 41%

The above numbers are based on 1,074 samples for upward breakouts and 696 for downward breakouts using 846 stocks from July 1991 to October 2017. See the glossary for definitions.

 

Broadening Tops: Identification Guidelines

CharacteristicDiscussion
Price trendUpward leading to the pattern. That is, the trend start is below the pattern's start.
ShapeHigher peaks and lower valleys -- a megaphone shape.
TrendlinesThe top trendline 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 an up-sloping channel with an upward spike at pattern's end.
White spacePrice should cross the pattern from side to side, filling the area with price movement.
BreakoutCan occur in any direction (upward 61%, downward 39%) and it happens when price pierces a trendline or moves above/below the end of the pattern.
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Broadening Tops: 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 66% 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. Using a closer target improves the success rate to 77% for upward breakouts and 74% for downward ones.
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 52% 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) rise leading to the pattern (from the trend start).
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.
Yearly rangeUpward breakouts do best when the breakout price is anywhere except in the lowest third of the yearly price range. Downward breakouts show the reverse, with the best performers having breakouts within a third of the yearly low.
BreakoutThe breakout direction is upward 61% of the time.
Throwbacks and pullbacksBoth hurt post breakout performance when they appear.
Broadening top measure rule
The Measure Rule
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Bull Market Performance Over Decades
Breakout Direction1990s2000s2010s
Up (average)40%47%34%
Up (median)23%26%15%
 
Down (average)16%13%13%
Down (median)13%9%8%
 
Samples (up breakouts)253406415
Samples (down breakouts)197258241

Broadening Tops: Time Performance

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

Upward breakouts did best in the 2000s but worst in the 2010s (so far).

Downward breakouts outperformed in the 1990s compared to more recent decades.

 

 

 

Broadening top chart pattern example

Broadening Tops: Example

The figure on the right 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 © 2005-2017 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.