Broadening Bottoms

As of 03/21/2023

Indus: 32,561 +316.02 +1.0%

Trans: 13,994 +229.26 +1.7%

Utils: 909 -22.36 -2.4%

Nasdaq: 11,860 +184.57 +1.6%

S&P 500: 4,003 +51.30 +1.3%

YTD

-1.8%

+4.5%

-6.0%

+13.3%

+4.3%

Targets Overview: 02/14/2023

30,900 or 33,100 by 04/01/2023

15,350 or 13,400 by 04/01/2023

940 or 860 by 04/01/2023

12,450 or 11,000 by 04/15/2023

4,100 or 3,800 by 04/01/2023

Chart Pattern Indicator:

on 3/20/23

As of 03/21/2023

Indus: 32,561 +316.02 +1.0%

Trans: 13,994 +229.26 +1.7%

Utils: 909 -22.36 -2.4%

Nasdaq: 11,860 +184.57 +1.6%

S&P 500: 4,003 +51.30 +1.3%

YTD

-1.8%

+4.5%

-6.0%

+13.3%

+4.3%

Targets Overview: 02/14/2023

30,900 or 33,100 by 04/01/2023

15,350 or 13,400 by 04/01/2023

940 or 860 by 04/01/2023

12,450 or 11,000 by 04/15/2023

4,100 or 3,800 by 04/01/2023

Chart Pattern Indicator:

on 3/20/23

Bulkowski on the Broadening Bottom Chart Pattern

For more information on this pattern, read Encyclopedia of Chart Patterns

Encyclopedia of Chart Patterns 2nd Edition book.

, pictured on the right. The book has a chapter which gives a complete review of the chart pattern, compared to what is described below.

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.

Broadening Bottom: Overview

The broadening bottom is one of those chart patterns that appears often, but its performance rank is mid list or worse. The break even failure rate is in the lower half of the rankings, but near the middle. The broadening bottom has one redeeming value and that is the partial decline which does a good job of predicting an upward breakout.

The picture shows a broadening bottom with a partial rise, not a partial decline. Go figure.

Broadening Bottoms: Important Bull Market Results

The above numbers are based on 599 samples for upward breakouts and 405 for downward breakouts. See the glossary for definitions.

Broadening Bottoms: Identification Guidelines

Characteristic	Discussion
Price trend	Downward leading to the pattern. That is, the closing price at the trend start is above the close at the pattern's start.
Shape	Higher peaks and lower valleys -- a megaphone shape.
Trendlines	The top trend line slopes upward, the bottom one slopes downward.
Touches	At least five touches total, three peaks or three valleys should touch the associated trend line with two or more touches of the other trendline. Ideally, the second of three touches will touch (instead of coming 'close' to) the trendline. This avoids the identification problem where price forms a down-sloping channel with an upward spike at pattern's end. See the next section.
White space	Price should cross the pattern from side to side, filling the area with price movement. See the next section.
Volume	Upward 65% (up breakouts) to 67% (down breakouts) of the time.
Breakout	Can occur in any direction (upward 60% of the time) and it happens when price pierces a trendline or moves above/below the end of the pattern.

Broadening Bottoms: Two Examples

Here's an example of an identification mistake. I show the same time period in both halves of the chart.

In the left half, I show what appears to be a broadening bottom. Price trends downward into the pattern and then broadens out. Price touches the bottom trendline three distinct times (numbered) with the middle touch (2) falling a bit short of the line, but it's close enough. The top trendline has a two touches at the start (1, 2) and a few more at the end (3, 4). It looks like price is broadening out. But there's one problem.

If peak A touched the top trendline, then it would be a nicely shaped broadening bottom.

Look at the right half of the chart. Here I drew a channel, outlining price movement. Clearly this is not a broadening pattern. It's just a down trend followed by an up trend.

Broadening Bottoms: A Good Example

Price crosses the pattern from side to side in minor high and minor low touches. This example has five touches on the top and three on the bottom.

Point A shows a partial decline. Price drops but doesn't touch the bottom trendline before reversing and staging an immediate upward breakout in this example.

Broadening Bottoms: Trading Tips

Trading Tactic	Explanation	The Measure Rule
Measure rule	Compute the difference between the highest peak (A) and lowest valley (B) in the pattern to get the height. Add the height to the pattern's top (for upward breakouts, works 65% of the time) or subtract it from the pattern's bottom (downward breakouts, works 41% of the time). Or multiply the height by the 'percentage meeting price target' (see above) and add it to the highest peak (A, upward breakout) or subtract it from the lowest valley (B, downward breakout) to get a price target, D or E, respectively.
Intraformation trade	Buy when price rebounds off the lower trendline (C), and short at the top (A) when price heads down.
Buy at 3rd touch	When price touches the bottom trendline for the third time (C) and begins rising, buy.
Short at the top	When price touches the top trendline and begins falling (A), sell or sell short.
Partial rise	A partial rise works 53% of the time.
Partial decline	A partial decline works 73% of the time.
Price trend	The best performing patterns with upward breakouts are those with an intermediate-term (3-6 months) decline leading to the pattern (from the trend start).
Yearly range	Upward and downward breakouts perform best when the breakout is within a third of the yearly low.
Volume trend	Does best when volume trends upward (within the pattern) for both breakout directions.
Breakout	The breakout direction is upward 60% of the time.
Throwbacks and pullbacks	Both hurt performance when they appear. The links on the left define terms and these links discuss performance for throwback and pullbacks

Broadening Bottoms: Time Performance

The above table shows the performance of broadening bottom chart patterns in bull markets over the last three decades.

The 1990s show the pattern performing worse than the two recent decades (for upward breakouts) or marginally better performance for downward breakouts.

A check of the failure rates (not shown) have been stable for upward breakouts, which is reassuring, but downward breakouts have seen failures more than double in the last 2 decades compared to the 1990s.

Broadening Bottoms: Example

The associated figure shows an example of a broadening bottom chart pattern on the daily scale. Price begins the broadening bottom at A and forms diverging peaks and valleys.

This example is not ideal because of the gap between peak B and the top trendline. In this example, however, it's close enough to qualify as a broadening bottom.

Bull Market Performance Over Decades
Breakout Direction	1990s	2000s	2010s
Up (average)	40%	46%	46%
Down (average)	17%	14%	14%

Notice that if you draw the top trendline to connect point B instead of C, the pattern would take on the appearance of a right-angled and descending broadening formation because the top trendline would be flat or nearly so. Also, price at E bounces to D and then makes a lower low at F. Point D looks like a partial rise which fails when the predicted breakout at F does not occur. This is one example of why trading broadening bottoms for profit is difficult, even if relying on a partial decline or partial rise.

At the end of the broadening bottom, C, a partial decline occurs which correctly predicts an upward breakout. This allowed astute traders early entry.

Bulkowski on the Broadening Bottom Chart Pattern

Broadening Bottom: Overview