Getting Started in: Chart Patterns: Second Edition by Thomas Bulkowski

Author:Thomas Bulkowski
Language: eng
Format: epub
ISBN: 9781118859117
Published: 2014-02-12T00:00:00+00:00

Broadening Tops and Bottoms

Since this chapter is all about sell signals, let’s concentrate on downward breakouts from broadening tops and bottoms.

Figure 6.30 shows an example of a broadening bottom. Price enters the pattern from the top and eases out the bottom before reversing in late February and embarking on a sustained up move.

FIGURE 6.30 A broadening bottom led to two profitable trades.

Identification

When trying to identify broadening tops or bottoms, look for the following:

Bottoms have price trending downward into the chart pattern; tops have price trending upward.

Find a megaphone price trend—higher peaks and lower valleys. Price broadens out over time, giving the pattern its name.

Price follows two trendlines. The top trendline slopes upward and the bottom one slopes downward.

Price should touch each trendline at least twice, preferably three or more times.

Price should cross the pattern from side to side and not leave much white space. Too much white space and you risk trading a pattern that does not exist. The trendline touches need not alternate but usually do.

Volume trends upward between 62% and 64% of the time.

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