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 45 to 62. That chapter gives a complete review of the chart pattern, including tour, identification guidelines, focus on failures, performance statistics, trading tactics, and sample trade. Below is just a sliver of the information contained in the book.
The right-angled and descending broadening chart pattern is the worst performing chart pattern in
a bull market. The break even failure rate is high and the average rise is meager. This is not a chart pattern you'll
want to curl up with at night and dream about unless you like losing money.
Important Bull Market Results
Overall performance rank for up/down breakouts (1 is best): 23 out of
23; 13 out of 21
Break even failure rate for up/down breakouts: 19%; 14%
Average rise/decline: 28%; 15%
Throwback/pullback rate: 52%; 51%
Percentage meeting price target for up/down breakouts: 63%; 44%
The above numbers are based on hundreds of perfect trades. See the glossary for definitions.
Right-Angled and Descending Broadening Formation Identification Guidelines
|Price trend||Can be up or down leading to the pattern.|
|Shape||A megaphone tilted down with the top horizontal.|
|Trendlines||The top trendline is horizontal, the bottom one slopes downward.|
|Touches||At least two peaks and two valleys should touch their respective trendline.|
|Volume shape||Trends upward 54% to 59% of the time with a dome shape.|
|Breakout||Upward 51% of the time.|
Right-Angled and Descending Broadening Formation Trading Tips
|Measure rule||Compute 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 trade||Buy at the bottom trendline when price starts rising and sell or sell short once price turns at the horizontal trendline.|
|Buy at 3rd touch||When price touches the bottom trendline for the third time and begins rising, buy.|
|Partial rise||A partial rise works 54% of the time.|
|Partial decline||A partial decline works 63% of the time.|
|Price trend||The best performing patterns are those with an intermediate- or long-term (over three months) price trend leading to the pattern.|
|Yearly middle||For both breakout directions, the middle third of the yearly price range performs best. For downward breakouts, the highest third also performs well.|
|Volume trend||A rising volume trend results in the best post breakout performance.|
|Throwbacks and Pullbacks||Throwbacks and pullbacks
hurt post breakout performance.|
The Measure Rule
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
Other Right-Angled and Descending Broadening Formation Examples
Copyright © 2005-2011 by Thomas N. Bulkowski. All rights reserved. Does the information superhighway have any rest stops?