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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 Partial Declines

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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.

My book, Getting Started in Chart Patterns, Second EditionGetting Started in Chart Patterns, Second Edition book., discusses partial rises and declines starting on page 207 in the section conveniently titled, "Partial Rises and Declines." Film at 11:00. I show a picture of the book on the left.

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Partial declines are looping chart patterns that appear at the end of broadening patterns and rectangles. They predict an immediate upward breakout but are not always correct.

New research (as of November 2013) says that when a partial decline occurs, post-breakout performance improves. That's a surprise since I expected momentum to suffer.

 

Partial decline chart pattern

Partial Decline Chart Pattern

Partial Decline Identification Guidelines

CharacteristicDiscussion
EstablishedThe rectangle or broadening chart pattern should be an established one, meaning that it should obey all of the identification guidelines for that pattern. Don’t look for a partial decline until you have a completed rectangle or broadening chart pattern.
Top trendlinePrice should touch the top trendline and move down but not touch or come that close to the bottom trendline before heading back up. When price touches the upper trendline, it usually stages an immediate upward breakout. Sometimes, it may linger at the upper trendline before breaking through. If price bounces downward, close out your position.
BreakoutUpward. This usually occurs immediately after the partial decline touches the upper trendline.
PausePrice often pauses partway across a chart pattern so it may look like a partial decline is forming. Wait for price to head back up before buying the stock.
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Partial Decline Trading Tips

Trading TacticExplanation
Price loopIf price bounces off the upper trendline and heads back down, then rounds over before coming close to the bottom trendline, then it may be a partial decline. Buy once it’s clear that price is heading back toward the upper trendline.
FibonacciA trend reversal at the 50% or 62% Fibonacci retrace of the prior up move may signal a partial decline.
PausePrice may pause at the upper trendline, perhaps slide along it before breaking out upward.
ExitExit your position if price bounces off the upper trendline and heads back down.
BreakoutExpect an upward breakout after a partial decline.
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Partial Decline Patterns

The following table shows how often a partial decline correctly predicts an upward breakout in bull markets.

Chart PatternsSuccess
Rate
Broadening bottoms80%
Broadening formations, right-angled and ascending81%
Broadening formations, right-angled and descending63%
Broadening tops72%
Broadening wedges, ascending35%
Broadening wedges, descending87%
Rectangle bottoms80%
Rectangle tops91%

Partial Decline Example

Partial decline in a broadening bottom chart pattern

The above figure shows an example of a partial decline in a broadening bottom chart pattern. By the time the partial decline appeared, the broadening bottom had enough trendline touches to qualify as a valid chart pattern. Price attempted to touch the bottom trendline but did not make it. The reversal suggested an upward breakout was in the offing and that was exactly what happened.

Partial Decline: New Performance Research

This is based on new research using stock information from 3/1989 to 11/11/13. Not all stocks covered the entire period. I used broadening formations (all six types) and rectangles (tops and bottoms) in the research. Those patterns can show partial declines.

I compared the performance of 5,959 chart patterns with and without partial declines. This answers the question, "Does performance improve if a partial decline is missing?

The answer is no.

The 903 chart patterns with partial declines showed post breakout gains that averaged 33%. That compares to gains from 1,840 chart patterns that did not show a partial decline. Their gain averaged 29%. Thus, a partial decline is good for performance.

-- Thomas Bulkowski

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Other Partial Decline 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. Black holes are out of sight.