What Is a Broadening Bottom?
A Broadening Bottom (BB) is a unique chart pattern that signals a potential reversal after a downtrend. Visually, it resembles a megaphone price swings create higher highs and lower lows, widening over time. This pattern reflects growing market indecision before a decisive breakout.
Quick Performance Snapshot
| Upward Breakouts | Bull Market | Bear Market |
|---|---|---|
| Performance Rank | 17 out of 23 | 12 out of 19 |
| Break-even Failure Rate | 10% | 9% |
| Average Rise | 27% | 21% |
| Throwback Rate | 41% | 44% |
| Downward Breakouts | Bull Market | Bear Market |
|---|---|---|
| Performance Rank | 17 out of 21 | 18 out of 21 |
| Break-even Failure Rate | 16% | 9% |
| Average Decline | 15% | 18% |
| Pullback Rate | 42% | 56% |
Spotting a Genuine Broadening Bottom
Look for these five key features:
Downtrend First: Prices should be falling leading into the pattern. Ignore brief upticks right before formation.
Megaphone Shape: Two diverging trendlines one sloping up (resistance), one sloping down (support).
At Least 4 Touches: Minimum two minor highs and two minor lows. More touches increase validity.
Volume Often Rises: Volume typically increases (about 57% of the time), sometimes in a U-shape.
Clear Breakout: A close above the highest high (up) or below the lowest low (down) confirms direction.
Pro Tip: A "partial decline" (price dips toward support then reverses up) often signals an upward breakout. A "partial rise" (price rallies toward resistance then fails) often signals a downward breakout.
Why Broadening Bottoms Matter for Traders
While not the top-performing pattern, BBs offer reliable opportunities when traded correctly:
Higher Success in Bull Markets: Upward breakouts in rising markets show the lowest failure rates.
Fast Moves in Bear Markets: Downward breakouts in falling markets reach targets quickly (often within weeks).
Clear Entry Signals: Partial rises/declines provide early, low-risk entries.
Critical Statistics Every Trader Should Know
59% of upward breakouts in bull markets hit their price target
Over 50% of downward breakouts in bear markets fail to drop more than 15%
Tall, narrow patterns outperform short, wide ones
Throwbacks hurt performance avoid breakouts with nearby resistance/support
How to Trade Broadening Bottoms Profitably
Step 1: Calculate Your Price Target
Use the Measure Rule:
Find the pattern's highest high and lowest low
Subtract:
Highest High - Lowest Low = Pattern HeightFor long trades: Add height to the highest high
For short trades: Subtract height from the lowest low
Example: If high = $14.13 and low = $12:
Height = $2.13
Upside target = $16.26
Downside target = $9.87
Reality Check: This method works about 59% of the time for upward breakouts, but only 31% for downward breakouts in bear markets. Always combine with other analysis.
Step 2: Choose Your Entry
For Long Positions (Upward Breakout):
Enter when price bounces off the lower trendline
Place stop $0.15 below the nearest minor low
Move stop up after each new higher low
For Short Positions (Downward Breakout):
Enter when price rejects the upper trendline
Place stop $0.15 above the nearest minor high
Move stop down after each new lower high
Step 3: Manage Your Trade
Partial moves are friends: A partial decline often precedes upward breakouts; a partial rise often precedes downward breakouts
Watch volume: Random volume shapes (not U or dome) tend to perform best
Be quick in bear markets: Downward breakouts often complete within 1-2 months
Be patient in bull markets: Upward moves can take 3-4 months to develop
Common Pitfalls & How to Avoid Them
The 5% Failure: Prices reverse within 5% of breakout. Solution: Wait for confirmation—ensure closes beyond trendlines, not just intraday spikes.
Dead-Cat Bounce Trap: BBs forming after sharp declines often fail. Solution: Avoid stocks in recovery from severe drops for 6-12 months.
Throwback/Pullback Drag: Performance suffers when prices return to breakout point. Solution: Check for nearby support/resistance before entering.
Wrong Market Alignment: Trading against the trend reduces success. Solution: Favor upward breakouts in bull markets, downward in bear markets.
Advanced Tips for Better Performance
Pattern Selection:
Choose tall patterns over short ones
Prefer narrow formations over wide ones
Select BBs with falling volume for upward breakouts
Pick BBs with rising volume for downward breakouts
Timing Insights:
Watch for trend changes 5-6 weeks after breakout
Bear market moves complete 2-3× faster than bull market moves
Most gains/losses happen in first 1-2 months
Risk Management:
Always use stops: BBs can reverse unexpectedly
Scale in/out: consider partial positions at trendline touches
Have a profit target, but be ready to exit at resistance/support
