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%
|
|
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%
| |
| ||
Updated with new statistics on 8/25/2020.
For more information on this pattern, read
Encyclopedia of Chart Patterns,
pictured on the right. The book has a chapter which gives a complete review of the chart pattern, compared to what is described below.
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Click reverse symmetrical triangle to read about the Elliott wave version.
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 Bottom
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The above numbers are based on 599 samples for upward breakouts and 405 for downward breakouts. See the glossary for definitions.
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. |
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.
It's not a broadening bottom.
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.
Compare the prior example with this one, shown on the right.
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.
Price fills the white space with movement.
It looks like a broadening pattern.
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.
More
Consult the associated figure on the right.
Trading Tactic | Explanation | ![]() The Measure Rule
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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 |
Breakout Direction | 1990s | 2000s | 2010s |
Up (average) | 40% | 46% | 46% |
Down (average) | 17% | 14% | 14% |
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.
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.
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.
-- Thomas Bulkowski
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