As of 06/14/2024
  Indus: 38,589 -57.94 -0.1%  
  Trans: 14,807 -161.34 -1.1%  
  Utils: 917 -0.41 0.0%  
  Nasdaq: 17,689 +21.32 +0.1%  
  S&P 500: 5,432 -2.14 0.0%  
YTD
 +2.4%  
-6.9%  
 +4.0%  
 +17.8%  
 +13.9%  
  Targets    Overview: 06/13/2024  
  Up arrow39,900 or 37,650 by 07/01/2024
  Up arrow15,800 or 14,300 by 07/01/2024
  Up arrow960 or 890 by 07/01/2024
  Up arrow17,800 or 16,750 by 07/01/2024
  Up arrow5,500 or 5,250 by 07/01/2024
As of 06/14/2024
  Indus: 38,589 -57.94 -0.1%  
  Trans: 14,807 -161.34 -1.1%  
  Utils: 917 -0.41 0.0%  
  Nasdaq: 17,689 +21.32 +0.1%  
  S&P 500: 5,432 -2.14 0.0%  
YTD
 +2.4%  
-6.9%  
 +4.0%  
 +17.8%  
 +13.9%  
  Targets    Overview: 06/13/2024  
  Up arrow39,900 or 37,650 by 07/01/2024
  Up arrow15,800 or 14,300 by 07/01/2024
  Up arrow960 or 890 by 07/01/2024
  Up arrow17,800 or 16,750 by 07/01/2024
  Up arrow5,500 or 5,250 by 07/01/2024

Bulkowski on the Ascending Broadening Wedge

Added Trading Lessons 5/28/2024.

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.

If you click on the above link and then buy the book (or anything) while at Amazon.com, the referral will help support this site. Thanks.

-- Tom Bulkowski
Overview
Important Results
Identification Guidelines
Trading Tips
Example
Trading Lessons
See Also

Pictured is an ascending broadening wedge

Ascending Broadening Wedge

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

Overall performance rank for up/down breakouts (1 is best): 23 out of 39/33 out of 36
Break even failure rate for up/down breakouts: 15%/31%
Average rise/decline: 41%/12%
Throwback/pullback rate: 68%/62%
Percentage meeting price target for up/down breakouts: 61%/71%

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

Ascending Broadening Wedge: Identification Guidelines

CharacteristicDiscussion
Price trendCan be up or down leading to the pattern
ShapeA megaphone tilted up. Refer to the above figure.
TrendlinesBoth trendlines slope upward. The top one slopes more steeply than the bottom one.
TouchesAt least three peaks and three valleys should touch their respective trendline.
VolumeIrregular but trends upward 66% to 67% of the time.
BreakoutDownward 52% of the time.
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Ascending Broadening Wedge: Trading Tips

Trading TacticExplanation Measure rule for ascending broadening wedges
Measure rule for downward breakouts
Measure ruleRefer 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 tradeSince 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 touchWhen 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 riseA partial rise works 60% of the time. See the link on the left for more information.
Partial declineA partial decline works 65% of the time. See the link on the left for more information. Measure rule for ascending broadening wedges
Measure rule for upward breakouts
Price trendFor 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 lowDownward 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 pullbacksThrowbacks and pullbacks hurt post breakout performance. The links on the left define throwbacks and pullbacks. These links for throwbacks and pullbacks discuss performance.
Continuations/reversalsFor 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).
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Ascending Broadening Wedge: Example

An ascending broadening wedge chart pattern 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.

 

1 / 4
Chart of BBY

This chart shows only a portion of a multi-peak chart pattern. That's when price reaches a high and moves horizontally, forming additional peaks. A bullish pattern forming within this cluster has a better chance of failing. This is an example of that. Price breaks out upward from the broadening wedge and then reverses, causing a losing trade.

Next slide please.
2 / 4
Chart of BIIB

The start of the uptrend is not shown because it won't fit on the chart and this slide show. However, it's clear that the wedge appears well into the uptrend, so caution is advised. This wedge breaks out downward (bad if you took a long-side position, looking for an upward breakout). This is an example of the need to wait for an upward breakout before entering a trade but also to find patterns you believe are closer to the trend start than the end.

Next slide please.
3 / 4
Chart of ANET

This chart pattern breaks out downward, flips around, and breaks out upward, busting the downward breakout. The result is a nice rise. Look for busted patterns (downward breakouts) that turn around and breakout higher.

Next slide please.
4 / 4
Chart of ARW

Here we see a head-and-shoulders top, unconfirmed (meaning it could just be squiggles on a price chart), with the broadening wedge as part of it. Because the larger head-and-shoulders is a bearish chart pattern and it's obvious on the chart, I'd avoid this trade.

The End.

-- Thomas Bulkowski

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See Also

 

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