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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 Right-Angled and Descending Broadening Formations

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Busted
Patterns
Candles Chart
Patterns
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Patterns
Small Patterns
Market
Industrials (^DJI):
Transports (^DJT):
Utilities (^DJU):
Nasdaq (^IXIC):
S&P500 (^GSPC):
As of 02/23/2018
25,310 347.51 1.4%
10,579 150.03 1.4%
686 17.56 2.6%
7,337 127.30 1.8%
2,747 43.34 1.6%
YTD
2.4%
-0.3%
-5.2%
6.3%
2.8%
Tom's Targets    Overview: 02/14/2018
25,900 or 23,800 by 03/01/2018
10,850 or 9,800 by 03/01/2018
640 or 685 by 03/01/2018
7,400 or 6,700 by 03/01/2018
2,800 or 2,560 by 03/01/2018

Written by and copyright © 2005-2018 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 45 to 62.

Updated with new statistics on 1/23/2018.

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The right-angled and descending broadening chart pattern beats by one percentage point the performance of right-angled ascending broadening pattern in a bull market (43% average rise). The break even failure rate is high, though, at 20%. This is not a chart pattern you'll want to curl up with at night and dream about unless you like losing money.

Right-angled broadening formation, descending
Right-Angled and Descending Broadening Formation

 

Important Bull Market Results

Overall performance rank for up/down breakouts (1 is best): Not available yet
Break even failure rate for up/down breakouts: 20%; 23%
Average rise/decline: 43%; 15%
Median rise/decline for up/down breakouts: 23%; 12%
Throwback/pullback rate: 64%; 70%
Percentage meeting price target for up/down breakouts: 66%; 50%

The above numbers are based on 557 samples for upward breakouts and 315 for downward breakouts, using 604 stocks data from August 1991 to December 2017. See the glossary for definitions.

 

Right-Angled and Descending Broadening Formation: Identification Guidelines

CharacteristicDiscussion
Price trendCan be up or down leading to the pattern.
ShapeA megaphone tilted down with the top horizontal.
TrendlinesThe top trendline is horizontal, 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.
BreakoutUpward 63% of the time.
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Right-Angled and Descending Broadening Formation: Trading Tips

Trading TacticExplanation
Measure ruleCompute the height from the horizontal trendline (B in the Measure Rule figure to the right) to the lowest valley (A) and multiply it by the above 'percentage meeting price target.' Add the result to the horizontal trendline (B, upward breakouts) or subtract it from the lowest valley (A, downward breakouts) to get the price target (C).
Intraformation tradeBuy at the bottom trendline when price starts rising and sell or sell short once price turns at the horizontal trendline.
Buy at 3rd touchWhen price touches the bottom trendline for the third time and begins rising, buy.
Partial riseA partial rise works 50% of the time.
Partial declineA partial decline works 76% of the time.
Price trendThe best performing patterns are those with an intermediate-term (3-6 months) price trend leading to the pattern.
Yearly middleFor both breakout directions, the lowest third of the yearly price range performs best.
Volume trendA rising volume trend results in the best post breakout performance.
Throwbacks and PullbacksThrowbacks and pullbacks hurt post breakout performance.
Right-angled and descending broadening formation measure rule
The Measure Rule
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Bull Market Performance Over Decades
Breakout Direction1990s2000s2010s
Up (average)34%53%36%
Up (median)23%28%18%
 
Down (average)16%13%16%
Down (median)14%10%11%
 
Samples (up breakouts)162237158
Samples (down breakouts)11211588

Broadening Formations, Right-Angled and Descending: Time Performance

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

Upward breakouts did best in the 2000s but worst in the 1990s.

Downward breakouts did worst in the 2000s and outperformed in the 1990s and 2010s (so far). The median values give the edge to the 1990s, though.

 

 

Right-Angled and Descending Broadening Formation: Example

Right-angled and descending broadening formation example

The above figure shows an example of a right-angled and descending broadening formation chart pattern. Price begins a decline at A that leads to the chart pattern. Price bounces between a horizontal trendline on the top and a down-sloping one along the bottom of the chart pattern. A partial decline at B signals an impending upward breakout at C. After the breakout, price makes a strong move upward.

-- Thomas Bulkowski

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Other Right-Angled and Descending Broadening Formation: Examples

 

See Also

Written by and copyright © 2005-2018 by Thomas N. Bulkowski. All rights reserved. Disclaimer: You alone are responsible for your investment decisions. See Privacy/Disclaimer for more information. Does the information superhighway have any rest stops?