Ascending Broadening Wedges

During writing of my book, Encyclopedia of Chart Patterns, 2rd Edition, I thought of broadening tops and bottoms then wondered if similar patterns would appear if the megaphone shape were tilted up. That is how I discovered the ascending broadening wedge chart pattern. I am not claiming to be the first one to identify it. The list of chart pattern analysts is long and chart patterns have been around for decades. Certainly someone before me probably discovered them.

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Ascending Broadening Wedge: Overview

The ascending broadening wedge is a chart pattern that tends to disappear in a bear market. Most often, you'll find them in a bull market with a downward breakout. For more information see pages 81 to 97 of the book Encyclopedia of Chart Patterns, Second Edition and read the following...

Ascending Broadening Wedge: Important Bull Market Results

The above numbers are based on 690 perfect trades. See the glossary for definitions.

Ascending Broadening Wedge: Identification Guidelines

Ascending Broadening Wedge: Trading Tips

Trading Tactic	Explanation	Measure rule for downward breakouts
Measure rule	Refer to the two figures on the right. For downward breakouts, use the lowest valley in the pattern as the target. For upward breakouts, compute the difference between the highest peak (point A) and lowest valley (B) in the pattern to get the height. Multiply the height by the above 'percentage meeting price target' and add it to the breakout price (A) to get the price target (C).
Intraformation trade	Since the bottom trendline slopes upward, do not short this pattern at the top trendline. Go long at the bottom when price bounces off the bottom trendline, heading up.
Buy at 3rd touch	When price touches the bottom trendline for the third time and begins rising, buy. This is for aggressive traders because the breakout is often downward.
Partial rise	A partial rise works 60% of the time. See the link on the left for more information.
Partial decline	A partial decline works 65% of the time. See the link on the left for more information.	Measure rule for upward breakouts
Price trend	For upward breakouts, the best performing patterns are those with an intermediate-term (between 3 and 6 months) move leading to the pattern. Downward breakouts do better with a short-term move (less than 3 months) leading to the pattern.
Yearly low	Downward breakouts perform best when the breakout is within a third of the yearly low. For upward breakouts, performance improves when the breakout is within a third of the yearly high. The link on the left provides statistics (probably outdated) and this link gives additional information.
Throwbacks and pullbacks	Throwbacks and pullbacks hurt post breakout performance. The links on the left define throwbacks and pullbacks. These links for throwbacks and pullbacks discuss performance.
Continuations/reversals	For the patterns which breakout upward, 81% of them act as continuations of the prevailing price trend. Those continuations tend to outperform reversals with gains averaging 42% versus 35%, respectively. For those which breakout downward, 81% of those act as reversals of the prevailing price trend. Continuations also work best for those, but only by one percentage point: 13% (for continuations) versus 12% (for reversals).

Ascending Broadening Wedge: Example

The above figure shows an example of the ascending broadening wedge chart pattern. The only thing remarkable about this wedge is that a partial decline occurs after the breakout. Technically, that means a partial decline did not occur (because it is after the breakout), but it sure looks pretty on the chart.

Ascending Broadening Wedge: Trading Lessons

I present the information in slider format, so be sure to click the left or right arrows to view another slide.

For targets, I used the pattern's height added to the top of the pattern (Patternz software automatically calculates this for you).

Ascending Broadening Wedge: Lessons Summary

In my analysis of the ascending broadening wedge, I only looked at upward breakouts. The failure rate of upward breakouts is about half the rate for downward breakouts. Trade from the long side and wait for an upward breakout (a close above the top of the chart pattern, but you can use a buy stop to get you in when price touches a penny above the high).

Place a stop loss order a penny below the lowest price bar in the chart pattern.

Characteristic	Discussion
Price trend	Can be up or down leading to the pattern
Shape	A megaphone tilted up. Refer to the above figure.
Trendlines	Both trendlines slope upward. The top one slopes more steeply than the bottom one.
Touches	At least three peaks and three valleys should touch their respective trendline.
Volume	Irregular but trends upward 66% to 67% of the time.
Breakout	Downward 52% of the time.

Bulkowski on the Ascending Broadening Wedge