Trading Broadening Bottoms

The idea behind pattern pairs is to pick a chart pattern type (like broadening bottoms with upward breakouts) to buy and another to sell (like double tops). You buy the upward breakout from the broadening bottom, hold for a few years, and sell when a double top appears and breaks out downward. Along the way, you give price a chance to rise far enough to overcome those trades which are stopped out for a loss. This is a trend-following strategy.

Trading Broadening Bottoms: Summary

The figure illustrates the idea for trading pattern pairs, where price is the red line and the boxes are chart patterns. This articles assumes you buy either an upward breakout from a broadening bottom or a busted broadening bottom (price breaks out downward, drops no more than 10%, reverses, and closes above the top of the broadening bottom). Buy as price rises above the top of the broadening bottom.

On the sale side, you can sell the first bearish chart pattern which comes along. Or you can wait for your favorite bearish chart pattern to appear and sell then.

The best pattern to use for the sell signal is an inverted roof (with a downward breakout). Those are rare, so you might want to pick another pattern.

Here's a list of the top five performing sell signals, based on annualized gain (annualized because the hold time is often years, in parenthesis).

The following list shows the expected performance of chart pattern pairs, ranked by their expectancy. Expectancy is a way of gauging winning and losing trades and how much money you might make trading a pattern pair. I put the expected profit per trade, per share, in parenthesis.

For example, the pattern pair with the highest trade expectancy is to buy a broadening bottom with an upward breakout and sell a busted Eve & Adam double bottom. If you traded 100 shares, the average gain would be $1,453 or $14.53 per share.

Trading using a busted chart pattern results in worse performance than using non-busted patterns (at least for broadening bottoms as the buy signal).

Trading Broadening Bottoms: Entry and Exit Conditions

The databases I built over several decades doesn't identify every chart pattern. There may be plenty of double tops over the years, for example, that I didn't catalog on the way to the one I did catalog. So buying an upward breakout from a broadening bottom and selling at the double top I cataloged would be different than choosing to sell a different double top. However, the following analysis does give a real-world flavor for how well you might do trading chart patterns if you follow the pattern pair strategy.

I used the following 43 chart patterns in the analysis, but some only applied if they were busted.

Trading Broadening Bottoms: Stops

I used a stop loss order set a penny below the bottom of the broadening bottom. Price on the way down may have gapped below the stop price (for the sale price), so I used the lower of the stop price or the opening price on the day of sale).

For trailing stops, I removed the stop loss order and used a trailing stop set at 10%, 15%, 20%, or 25% below a peak, never lowering the stop value, but raising it if a higher peak came along during the trade.

In Table 1, I calculated the percentage net gain (the average of gains and losses) when using various trailing stop loss amounts (10%, 15%, 20%, and 25%) for all tested chart patterns according to the busted/non-busted buy/sell configuration. In parenthesis is the size of the average loss so I could detail how losses change with various stop loss orders.

For example, if I tested non-busted broadening bottoms and sold various non-busted patterns (broadening bottoms, broadening tops, head-and-shoulders tops, and so on), I made an average of 51% ("Stop Loss Only" column) after having a stop loss order in place. Losses averaged 14%. Replacing the stop loss with a 10% trailing stop cut the gain to 6% but also trimmed the average loss to 5%. Using a 25% trailing stop allowed me to keep more money, 22%, but losses climbed to 13%. If I didn't use any type of stop, the gain averaged 134% with losses averaging 32%.

Trading Broadening Bottoms: Busted Patterns

Table 1: Various Trailing Stop Settings: Net Profit and (Average Loss)
Data	10%	15%	20%	25%	Stop Loss Only	No Stop
Non-busted buys, non-busted sales	6% (-5%)	12% (-8%)	17% (-11%)	22% (-13%)	51% (-14%)	134% (-32%)
Busted buys, non-busted sales	2% (-7%)	5% (-10%)	16% (-13%)	31% (-18%)	21% (-11%)	93% (-35%)
Non-busted buys, busted sales	5% (-5%)	10% (-8%)	16% (-11%)	20% (-13%)	46% (-13%)	122% (-27%)
Busted buys, busted sales	2% (-7%)	6% (-10%)	17% (-13%)	32% (-18%)	24% (-10%)	92% (-31%)

Trading using a busted chart pattern often results in worse performance than using non-busted patterns (at least for broadening bottoms as the buy signal).

Table 2 shows what I found when comparing the performance of non-busted patterns (both buy and sell) with busted and non-busted chart patterns. In 22 or 31 contests (22 or 31 different chart pattern types, depending on which apply), I compared the three combinations of busted and non-busted buy and sell signals to non-busted buy and sell signals. The table below shows the percentage of time the busted combination beat the non-busted combination in the contests.

For example, I found that busted patterns won half (50%) the 22 contests when trading using a busted pattern for the sale. The worst performance came from buying using busted patterns and selling using non-busted ones. That configuration won only 3 of 31 contests (10%). The remaining cell won 5 of 22 contests (23%).

Trading Broadening Bottoms: Non-busted Buy, Non-Busted Sale

Table 2: Busted or Non-Busted Contest Winners
	Sell Non-Busted Pattern	Sell Busted Pattern
Buy non-busted pattern	N/A (benchmark)	50%
Buy busted pattern	10%	23%

Table 3 shows statistics I collected for broadening bottoms using the trading rules described above and shown in the figure. A stop loss order was used and priced a penny below the bottom of the broadening bottom (after buying).

For example, if you were to buy the upward breakout from a broadening bottom chart pattern and hold it until you encountered another broadening bottom (the first chart pattern listed in the table), but one with a downward breakout, you'd make an average of 46% on the 150 (45 winners, 105 losers) trades. That's an average of 188% on your winners, 14% average loss on your losers, and holding onto the position an average of 2.2 years. You'd find that only 30% of the trades made money but you'd gain an average of 21% per year (ranking 27th where 1 is best). If you removed the stop loss order and just held on until the broadening bottom with a downward breakout appeared, you'd make an average of 131% per trade.

The expectancy averages $3.48 per share per trade which ranks 35th where 1 is the best value. Using my data to trade, you'd average $348 per trade after buying and selling broadening bottoms.

Notes: All of the above numbers appear in the table except for the average hold time (2.2 years). The rank is based on the net gain for all four performance tables (tables 3 to 6) shown below.

Table 3: Statistics for Broadening Bottoms
Sell Pattern	Average Win	Average Loss	Net	Annualized Net	Rank	No Stop Net	Win/Loss Samples	Win Loss	Average Expectancy (Rank)
Broadening bottom	188%	-14%	46%	21%	27	131%	45/105	30%	$3.48 (35)
Broadening top	198%	-13%	59%	26%	12	119%	105/200	34%	$8.04 (7)
Broadening formation, right-angled and ascending	153%	-15%	22%	13%	57	90%	33/115	22%	$-0.18 (79)
Broadening formation, right-angled and descending	122%	-14%	24%	12%	60	66%	34/87	28%	$2.06 (55)
Broadening wedge, ascending	167%	-14%	54%	23%	21	109%	35/59	37%	$6.51 (13)
Broadening wedge, descending	164%	-14%	49%	23%	21	126%	31/57	35%	$3.63 (31)
Bump-and-run reversal top	192%	-15%	64%	27%	10	129%	109/177	38%	$5.62 (16)
Diamond bottom	169%	-12%	41%	22%	23	91%	11/26	30%	$1.28 (64)
Diamond top	143%	-14%	33%	18%	39	128%	36/84	30%	$4.79 (23)
Adam & Adam double top	307%	-13%	78%	30%	7	193%	205/515	28%	$8.69 (4)
Adam & Eve double top	326%	-13%	81%	33%	4	210%	103/268	28%	$9.37 (3)
Eve & Adam double top	215%	-13%	57%	21%	27	141%	123/279	31%	$6.73 (12)
Eve & Eve double top	211%	-14%	44%	20%	32	143%	95/272	26%	$3.85 (29)
Falling wedge	195%	-14%	20%	11%	63	53%	15/78	16%	$-0.91 (83)
Head-and-shoulders top	164%	-14%	32%	16%	47	132%	302/873	26%	$3.32 (39)
Sell Pattern	Average Win	Average Loss	Net	Annualized Net	Rank	No Stop Net	Win/Loss Samples	Win Loss	Average Expectancy (Rank)
Head-and-shoulders, complex top	153%	-14%	38%	20%	32	127%	62/135	31%	$2.89 (45)
Rectangle top	124%	-16%	16%	10%	68	99%	45/155	23%	$2.58 (49)
Rising wedge	170%	-14%	39%	21%	27	105%	99/242	29%	$3.58 (33)
Rounding top	344%	-15%	64%	26%	12	134%	41/145	22%	$3.12 (42)
Ascending scallop	138%	-17%	26%	14%	56	83%	18/46	28%	$1.15 (67)
Descending scallop	181%	-16%	43%	22%	23	94%	157/369	30%	$2.26 (53)
Scallop, inverted and ascending	195%	-15%	55%	26%	12	126%	18/36	33%	$3.48 (35)
Scallop, descending and inverted	239%	-16%	64%	26%	12	102%	108/235	31%	$2.70 (47)
Triangle, ascending	102%	-14%	11%	7%	79	77%	37/135	22%	$1.59 (60)
Triangle, descending	300%	-14%	52%	28%	8	67%	36/136	21%	$0.16 (77)
Triangle, symmetrical	157%	-14%	30%	16%	47	113%	155/440	26%	$3.40 (38)
Triple top	193%	-14%	46%	19%	37	101%	277/680	29%	$5.37 (18)
Rectangle bottom	341%	-15%	65%	27%	10	115%	32/111	22%	$3.49 (34)
3 falling peaks	286%	-16%	79%	31%	5	135%	332/732	31%	$5.08 (20)
Roof	140%	-13%	23%	13%	57	63%	13/43	23%	$3.93 (28)
Roof, inverted	441%	-15%	114%	53%	1	193%	23/58	28%	$8.10 (6)
Sell Pattern	Average Win	Average Loss	Net	Annualized Net	Rank	No Stop Net	Win/Loss Samples	Win Loss	Average Expectancy (Rank)

Trading Broadening Bottoms: Busted Buy, Non-Busted Sale

The figure shows the setup for this scenario. When price busts the bearish chart pattern (downward breakout from a broadening bottom in a bull market), buy. Sell after a downward breakout from the target chart pattern.

Table 4 shows the performance of busted broadening bottoms for the entry and sales after downward breakouts from various bearish chart patterns. A stop loss order was used and priced a penny below the bottom of the broadening bottom (after buying).

A busted broadening bottom has a downward breakout but price drops no more than 10% before reversing and moving above the top of the broadening bottom. Buy when price moves at least a penny above the top of the busted broadening bottom. Sell after price drops at least a penny below the target chart pattern.

For example, buying a broadening bottom with a busted downward breakout in a bull market (the entry price is really the higher of a penny above the top of the broadening pattern or the opening price) and selling after the downward breakout from another broadening bottom shows winners averaging gains of 158%. Losses average 10%, for a net of 41%. Because trades are often years long, annualized the net becomes 18%. Only 36 trades occurred with a win/loss ratio of 31%. This scenario ranks the annualized net gain as 39th among the four tables. If you traded this as a buy-and-hold position, meaning no stops were used, the net gain climbed from 41% to 112%. Expectancy was $4.61 per share, ranking 24th where 1 is best.

Table 4: Statistics for Busted Buys, Normal Sales
Sell Pattern	Average Win	Average Loss	Net	Annualized Net	Rank	No Stop Net	Win/Loss Samples	Win Loss	Average Expectancy (Rank)
Broadening bottom	158%	-10%	41%	18%	39	112%	11/25	31%	$4.61 (24)
Broadening top	60%	-12%	5%	4%	84	76%	16/52	24%	$0.49 (75)
Broadening formation, right-angled and ascending	52%	-10%	-4%	-4%		74%	2/19	10%	$-2.01 ()
Broadening formation, right-angled and descending	56%	-14%	-1%	-1%	85	-7%	7/29	19%	$-2.51 (85)
Broadening wedge, ascending	30%	-14%	-8%	-5%		51%	2/12	14%	$-2.29 ()
Broadening wedge, descending	130%	-12%	16%	9%		52%	5/20	20%	$115 ()
Bump-and-run reversal top	151%	-11%	16%	11%	63	101%	9/45	17%	$0.03 (78)
Diamond bottom	86%	-7%	50%	33%		97%	8/5	62%	$11.42 ()
Diamond top	66%	-7%	21%	16%		101%	10/16	38%	$2.49 ()
Adam & Adam double top	214%	-10%	29%	16%	47	142%	30/142	17%	$1.76 (58)
Adam & Eve double top	327%	-12%	40%	18%	39	133%	10/55	15%	$3.26 (40)
Eve & Adam double top	139%	-11%	10%	8%	74	93%	10/62	14%	$-0.79 (82)
Eve & Eve double top	228%	-12%	33%	17%	43	193%	14/60	19%	$1.58 (62)
Falling wedge	43%	-11%	4%	4%		32%	5/13	28%	$0.37 ()
Head-and-shoulders top	133%	-11%	21%	11%	63	124%	51/178	22%	$1.78 (56)
Sell Pattern	Average Win	Average Loss	Net	Annualized Net	Rank	No Stop Net	Win/Loss Samples	Win Loss	Average Expectancy (Rank)
Head-and-shoulders, complex top	118%	-11%	27%	19%	37	87%	16/38	30%	$1.78 (56)
Rectangle top	148%	-14%	21%	12%	60	96%	9/33	21%	$1.26 (65)
Rising wedge	126%	-11%	32%	17%	43	104%	23/50	32%	$2.65 (48)
Rounding top	165%	-11%	35%	16%	47	83%	12/23	26%	$-0.78 (81)
Ascending scallop	27%	-12%	6%	10%		20%	5/6	45%	$.67 ()
Descending scallop	164%	-10%	28%	16%	47	44%	20/72	22%	$0.88 (71)
Scallop, inverted and ascending	42%	-12%	-8%	-6%		105%	1/16	6%	$-4.04 ()
Scallop, descending and inverted	83%	-12%	7%	5%	82	44%	13/52	20%	$-0.48 (80)
Triangle, ascending	78%	-13%	16%	9%	71	54%	13/28	32%	$2.90 (44)
Triangle, descending	74%	-9%	11%	9%	71	30%	9/28	24%	$1.06 (68)
Triangle, symmetrical	84%	-12%	14%	8%	74	63%	31/85	27%	$1.67 (59)
Triple top	112%	-11%	20%	11%	63	130%	56/171	25%	$3.16 (41)
Rectangle bottom	101%	-12%	11%	10%	68	-7%	7/27	21%	$-2.44 (84)
3 falling peaks	157%	-8%	25%	15%	52	96%	36/145	20%	$1.29 (63)
Roof	93%	-8%	2%	1%		107%	1/9	10%	$0.17 ()
Roof, inverted	50%	-7%	3%	3%		42%	3/14	18%	$-1.98 ()
Sell Pattern	Average Win	Average Loss	Net	Annualized Net	Rank	No Stop Net	Win/Loss Samples	Win Loss	Average Expectancy (Rank)

Trading Broadening Bottoms: Non-busted Buy, Busted Sale

A bullish chart pattern appears and you buy at the breakout. Continue holding until your selected chart pattern appears. The chart pattern is bullish because it has an upward breakout but then things go wrong. Price reverses. Sell when the stock dips below the bottom of the chart pattern (meaning it busts the upward breakout).

Table 5 shows the performance statistics for this setup (buying a normal broadening bottom and selling only after a busted chart pattern). A stop loss order was used and priced a penny below the bottom of the broadening bottom (after buying).

For example, buying a broadening bottom with an upward breakout in a bull market and selling a busted broadening bottom shows winning trades making an average of 254%. Losing trades lost 13%, giving a net of 54%. Because the hold time is often years long, the annualized gain is 20%, giving the setup a rank of 32nd (where 1 is best). If you traded this without a stop, the net gain climbed from 54% to 100%. Of the stocks I looked at, I found 68 trades with 25% of them winning. Expectancy was $6.07 per share, ranking 14th where 1 is best.

Table 5: Statistics for Normal Buy, Busted Sale
Sell Pattern	Average Win	Average Loss	Net	Annualized Net	Rank	No Stop Net	Win/Loss Samples	Win Loss	Average Expectancy (Rank)
Broadening bottom	254%	-13%	54%	20%	32	100%	17/51	25%	$6.07 (14)
Broadening top	221%	-13%	58%	21%	27	152%	46/106	30%	$7.45 (8)
Broadening formation, right-angled and ascending	195%	-14%	37%	21%	27	82%	13/40	25%	$2.50 (50)
Broadening formation, right-angled and descending	82%	-11%	15%	8%	74	90%	22/55	29%	$2.20 (54)
Broadening wedge, ascending	94%	-11%	17%	7%		62%	6/16	27%	$3.72 ()
Broadening wedge, descending	115%	-13%	27%	12%	60	92%	14/31	31%	$3.48 (35)
Bump-and-run reversal bottom	176%	-12%	91%	25%	16	125%	17/14	55%	$7.09 (10)
Cup with handle	437%	-15%	72%	29%		134%	5/21	19%	$-0.62 ()
Diamond bottom	274%	-13%	80%	31%	5	113%	10/21	32%	$0.64 (73)
Diamond top	274%	-12%	45%	25%	16	104%	10/40	20%	$5.40 (17)
Adam & Adam double bottom	412%	-13%	112%	34%	3	232%	64/154	29%	$11.12 (2)
Adam & Eve double bottom	237%	-13%	54%	20%	32	120%	34/93	27%	$5.33 (19)
Eve & Adam double bottom	314%	-13%	76%	25%	16	266%	25/67	27%	$14.53 (1)
Eve & Eve double bottom	265%	-17%	59%	20%	32	108%	25/68	27%	$7.42 (9)
Falling wedge	121%	-14%	14%	7%	79	73%	17/66	20%	$1.23 (66)
Head-and-shoulders bottom	159%	-12%	34%	15%	52	98%	71/189	27%	$3.74 (30)
Sell Pattern	Average Win	Average Loss	Net	Annualized Net	Rank	No Stop Net	Win/Loss Samples	Win Loss	Average Expectancy (Rank)
Head-and-shoulders complex bottom	239%	-15%	50%	22%	23	93%	9/26	26%	$0.48 (76)
Rectangle top	112%	-13%	13%	8%	74	53%	19/72	21%	$1.59 (60)
Rising wedge	275%	-13%	76%	35%	2	114%	16/36	31%	$0.94 (70)
Round bottom	56%	-13%	6%	4%		47%	6/15	29%	$1.29 ()
Rounding top	118%	-12%	26%	15%		38%	8/19	30%	$-0.21 ()
Ascending scallop	186%	-14%	47%	22%	23	158%	23/53	30%	$2.34 (51)
Descending scallop	160%	-15%	57%	17%		98%	12/17	41%	$8.00 ()
Scallop, inverted and ascending	227%	-14%	65%	24%	19	128%	39/79	33%	$5.84 (15)
Scallop, descending and inverted	222%	-11%	79%	28%	8	123%	23/36	39%	$6.89 (11)
Triangle, ascending	242%	-13%	53%	24%	19	98%	25/72	26%	$4.02 (27)
Triangle, descending	116%	-14%	17%	11%	63	55%	19/61	24%	$0.88 (71)
Triangle, symmetrical	126%	-13%	20%	10%	68	101%	72/227	24%	$2.73 (46)
Triple bottom	133%	-14%	31%	13%	57	96%	87/194	31%	$4.41 (26)
Rectangle bottom	114%	-17%	11%	5%	82	285%	11/40	22%	$8.50 (5)
3 rising valleys	157%	-14%	40%	17%	43	124%	69/149	32%	$5.08 (20)
Roof	108%	-15%	26%	10%		74%	5/10	33%	$7.61 ()
Roof, inverted	141%	-12%	35%	18%	39	104%	11/25	31%	$3.62 (32)
Sell Pattern	Average Win	Average Loss	Net	Annualized Net	Rank	No Stop Net	Win/Loss Samples	Win Loss	Average Expectancy (Rank)

Trading Broadening Bottoms: Busted Buy, Busted Sale

Table 6 shows the last combination of trading statistics. It shows busted broadening bottoms as the entry signal and various busted chart patterns as the exit signal. Keep in mind that some trades were few. A stop loss order was used and priced a penny below the bottom of the broadening bottom (after buying).

For example, buying and selling a busted broadening bottom made 37% from the winners, lost 11% on the losers for a net gain of 3%. Annualized, it was 2%. The net gain placed the performance of this setup at 112th, where 1 is best. Removing stops from the trades allowed them to make 49%, far above the 3% net when using a stop loss order. Only 14 trades were taken and 29% of them were winners. Expectancy was a loss of $0.42 per share.

Table 6: Statistics for Busted Buys and Sales
Sell Pattern	Average Win	Average Loss	Net	Annualized Net	Rank	No Stop Net	Win/Loss Samples	Win Loss	Average Expectancy (Rank)
Broadening bottom	37%	-11%	3%	2%		49%	4/10	29%	$-0.42 ()
Broadening top	154%	-8%	28%	15%	52	99%	8/28	22%	$4.52 (25)
Broadening formation, right-angled and ascending	178%	-10%	32%	16%		64%	2/7	22%	$3.76 ()
Broadening formation, right-angled and descending	74%	-9%	8%	5%		64%	4/15	21%	$1.01 ()
Broadening wedge, ascending	246%	-9%	93%	34%		124%	2/3	40%	$14.30 ()
Broadening wedge, descending	None	-12%	-12%	-6%		143%	0/8	0%	$0.00 ()
Bump-and-run reversal bottom	None	-8%	-8%	-6%		171%	0/10	0%	$0.00 ()
Cup with handle	106%	-11%	8%	6%		-1%	1/5	17%	$-2.48 ()
Diamond bottom	61%	-10%	1%	1%		46%	2/11	15%	$-2.01 ()
Diamond top	60%	-6%	19%	13%		38%	6/10	38%	$6.28 ()
Adam & Adam double bottom	97%	-8%	20%	8%	74	125%	12/33	27%	$2.91 (43)
Adam & Eve double bottom	138%	-12%	21%	8%		113%	7/24	23%	$2.16 ()
Eve & Adam double bottom	148%	-10%	40%	16%		94%	8/17	32%	$7.57 ()
Eve & Eve double bottom	167%	-11%	29%	9%		125%	6/21	22%	$2.59 ()
Falling wedge	19%	-11%	-9%	-11%		44%	1/14	7%	$-2.93 ()
Head-and-shoulders bottom	116%	-10%	17%	7%	79	72%	11/40	22%	$0.57 (74)
Sell Pattern	Average Win	Average Loss	Net	Annualized Net	Rank	No Stop Net	Win/Loss Samples	Win Loss	Average Expectancy (Rank)
Head-and-shoulders complex bottom	159%	-9%	47%	16%		94%	3/6	33%	$6.90 ()
Rectangle top	70%	-5%	20%	13%		64%	5/10	33%	$0.60 ()
Rising wedge	210%	-10%	41%	22%		111%	3/10	23%	$1.07 ()
Round bottom	35%	-20%	-2%	-1%		-14%	1/2	33%	$5.97 ()
Rounding top	37%	-6%	23%	12%		13%	2/1	67%	$-0.62 ()
Ascending scallop	None	-6%	-6%	-20%		79%	0/7	0%	$0.00 ()
Descending scallop	7%	-12%	-9%	-8%		20%	1/6	14%	$-6.45 ()
Scallop, inverted and ascending	336%	-10%	51%	21%		102%	3/14	18%	$1.28 ()
Scallop, descending and inverted	19%	-11%	-1%	0%		75%	2/4	33%	$0.76 ()
Triangle, ascending	226%	-12%	36%	10%		115%	2/8	20%	$7.91 ()
Triangle, descending	213%	-11%	34%	16%		46%	4/16	20%	$3.16 ()
Triangle, symmetrical	196%	-10%	26%	15%	52	127%	10/47	18%	$1.01 (69)
Triple bottom	183%	-10%	42%	17%	43	133%	17/46	27%	$4.87 (22)
Rectangle bottom	41%	-14%	0%	0%		142%	2/6	25%	$-1.60 ()
3 rising valleys	110%	-11%	18%	9%	71	127%	10/32	24%	$2.28 (52)
Roof	None	-6%	-6%	-7%		132%	0/3	0%	$0.00 ()
Roof, inverted	14%	-12%	-7%	-5%		109%	2/9	18%	$-0.62 ()
Sell Pattern	Average Win	Average Loss	Net	Annualized Net	Rank	No Stop Net	Win/Loss Samples	Win Loss	Average Expectancy (Rank)

Trading Broadening Bottoms: Performance Improvements

Here are a few ideas the data suggested which may improve performance of your pattern pairs trading.

Trend Start: Short, Medium, or Long

Find the trend start for your broadening bottom. Often you can just look at a chart and see where the trend begins. If not, or you want to be sure, then the glossary describes how to find it.

Determine the length from the trend start to the pattern's start: short term (less than 3 months), medium term (3 to 6 months) or long term (more than 6 months).

Table 7 shows the results for the four combinations of busted/non-busted trades and the resulting performance.

Buying patterns with a medium-term (3 to 6 months) duration from the trend start to the pattern's start results in better performance in most cases.

Notice that buying non-busted patterns performed better than their corresponding busted counterpart (compare the two rows). Avoid buying busted broadening bottoms.

Moving Averages: 50- and 200-Day SMA

Table 7: Short (S) Medium (M) or Long (L) Trend Start and Performance
	Sell Non-Busted Pattern	Sell Busted Pattern
Buy non-busted pattern	S47% M65% L44%	S46% M58% L30%
Buy busted pattern	S15% M30% L28%	S27% M19% L20%

I checked two moving averages at buy time, 50- and 200-day simple moving averages (not as a crossover setup). I compared the breakout price to the value of the moving average. Table 8 shows the performance of buying or selling busted or non-busted patterns when the breakout price was above (A) or below (B) the 50-day simple moving average (SMA).

Notice that buying non-busted patterns outperformed buying busted ones (compare the two rows). Non-busted buys work best if the breakout price is below the 50-day SMA. Busted patterns show the reverse with performance improving if the breakout price is above the moving average.

Table 8: Above (A) Below (B) 50-Day Simple Moving Average
	Sell Non-Busted Pattern	Sell Busted Pattern
Buy non-busted pattern	A37% B67%	A34% B60%
Buy busted pattern	A33% B6%	A27% B20%

Table 9 shows the results of using a longer moving average, the 200-day. Traders often use this as a proxy for the long-term trend.

The conclusions are the same as the prior table. Buying non-busted patterns outperformed buying busted ones (compare the two rows). Non-busted buys work best if the breakout price is below the 200-day SMA. Busted patterns show the reverse with performance improving if the breakout price is above the moving average.

Selling First Bearish Chart Pattern

The prior discussion assumes you buy a broadening bottom (busted or non-busted) but sell a chart pattern of your choosing, such as a downward breakout from a head-and-shoulders top (you wait for one to appear). What if you sold the first bearish chart pattern which comes along? How would you do?

Table 9: Above (A) Below (B) 200-Day Simple Moving Average
	Sell Non-Busted Pattern	Sell Busted Pattern
Buy non-busted pattern	A36% B69%	A38% B56%
Buy busted pattern	A31% B1%	A32% B5%

Table 10 shows the results sorted by the type of patterns involved (busted or non-busted). For example, if you buy a non-busted broadening bottom and sell the first non-busted chart pattern which comes along, you'd make 9% on average. Annualized, you'd make 23%. This compares to a 23% annualized gain if you sell a designated pattern (like you waited for a double top before selling, which may or may not be the first bearish chart pattern to come along).

The best results come from buying a non-busted broadening bottom and selling the first non-busted pattern which appears. That combination makes 23% annually, beating the other annualized rates.

The worst performance comes from trading busted patterns which lose money (-5% per trade or -16% annually).

The bottom half of the table shows expectancy for the four combinations. The results mirror the top half of the table. For example, the best performance comes from buying an selling non-busted patterns (Expectancy: $1.46). The worse performance, trading busted ones (Expectancy: $-1.12).

Bulkowski on Pattern Pairs: Broadening Bottoms