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Bulkowski's Descending Broadening Wedges
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Market
Industrials (^DJI):
Transports (^DJT):
Utilities (^DJU):
Nasdaq (^IXIC):
S&P 500 (^GSPC):
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As of 02/03/2012
12,862 156.82 1.2%
5,369 63.27 1.2%
451 1.52 0.3%
2,906 45.98 1.6%
1,345 19.36 1.5%
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YTD
5.3%
7.0%
-2.9%
11.5%
6.9%
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 13,100 or 12,400 by 02/15/2012 5,500 or 5,150 by 02/15/2012
470 or 440 by 02/15/2012
3,100 or 2,800 by 02/15/2012
1,375 or 1,300 by 02/15/2012
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Written by and copyright © 2005-2011 by Thomas N. Bulkowski. All rights reserved.
For more information on this pattern, read
Encyclopedia of Chart Patterns, Second Edition  ,
pictured on the right, pages 98 to 114. That chapter gives a complete review of the chart pattern, compared to what is described below.
Descending broadening wedges are mid list performers, found most often with upward breakouts in a
bull market. Downward breakouts are quite rare. As with other broadening patterns, partial rises and declines predict
the breakout direction. Partial declines work particularly well, but are difficult to distinguish from the pauses that
normally occur as price bounces from trendline to trendline.
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Descending Broadening Wedge
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Important Bull Market Results for Descending Broadening Wedges
Overall performance rank for up/down breakouts (1 is best): 12 out of
23; 11 out of 21
Break even failure rate for up/down breakouts: 6%; 9%
Average rise/decline: 33%; 20%
Throwback/pullback rate: 53%; 53%
Percentage meeting price target for up/down breakouts: 79%; 36%
The above numbers are based on hundreds of perfect trades. See the glossary for definitions.
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Descending Broadening Wedge Identification Guidelines
| Characteristic | Discussion |
| Price trend | Can be up or down leading to the pattern. |
| Shape | A megaphone tilted down. |
| Trendlines | Both trendlines slope downward. |
| Touches | At least two peaks and two valleys should touch their respective trendline. |
| Volume trend | Trends upward. |
| Breakout | Can occur in any direction but 55% of the time it breaks out opposite the prevailing trend. |
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Descending Broadening Wedge Trading Tips
Consult the associated figure on the right.
| Trading Tactic | Explanation |
| Measure rule | For upward breakouts, use the highest peak (A) in the chart pattern as the target. For downward
breakouts, compute the difference between the highest peak (A) and the lowest valley
B in the chart pattern to get the height. Multiply the height by the above "percentage meeting price target" and then subtract
it from the lowest valley (B) to get a price target. |
| Intraformation trade | Short at the top (1) when price heads down. Cover at the bottom trendline (2).
Do not buy at the bottom because of the down-sloping trend tends to cut profits short. |
| Buy at 3rd touch | When price touches the bottom trendline for the third time
(see point 3) and begins rising, buy. Price may
breakout on the following trip across the chart pattern. |
| Short at the top | When price touches the top trendline (1) and begins falling, sell or sell short. |
| Partial rise | A partial rise works just 14% of the time, so don't rely on it. |
| Partial decline | A partial decline works 87% of the time |
| Price trend | For upward breakouts, the best performing patterns are those with an intermediate-term (three to six months) rise leading to the pattern. |
| Yearly low | For downward breakouts, the best performing are those with breakouts within a third of the yearly low. For upward breakouts, performance is constant. |
| Volume trend | Downward breakouts do best when volume is trending up. Upward breakouts show better post breakout performance when volume trends downward throughout the pattern. |
| Breakout | The breakout direction is upward 79% of the time. |
| Throwbacks and pullbacks | Throwbacks hurt post breakout performance but pullbacks help. |
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 The Measure Rule
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Descending Broadening Wedge Example
The above figure shows an example of a descending broadening wedge chart pattern. The formation begins at point
A. This long and loose descending broadening wedge is typical for this chart pattern type.
A partial decline forms at B, and that might be the only redeeming feature of this chart
pattern. However, price breaks out upward and reaches the target within a week of the breakout. The target appears as
the dashed green line on the chart.
-- Thomas Bulkowski
Other Descending Broadening Wedge Examples
Copyright © 2005-2011 by Thomas N. Bulkowski. All rights reserved. If a train station is where a train stops, what is a workstation?
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