CHARTING
Is There A Bull Around The Corner?
Bullish Chart Patterns
by Thomas Bulkowski
Can you recognize bullish patterns when they appear? Find out what they look like here.
One day, the market will find a bottom and start building a base from which to launch another bull market. Will your trading missiles be ready? How will you know when the time comes to turn the key and start buying again? One way is to look for bullish chart patterns and trade them, cautiously, when they appear. What should you look for? To answer that, let's look at some of the more common chart patterns.
BROADENING BOTTOMS
Figure 1 shows a good example of what I call a broadening bottom. If you are familiar with broadening tops (see November-December 1996), bottoms are just the same, except that prices enter the formation after a downtrend. If the general market is at a turning point (from down to up), prices should reverse course and exit at the top of the chart pattern, but there is no guarantee of that. More than half the time (58%), the pattern acts as a reversal of the prevailing price trend. Still, 58% is only a slight improvement on randomness, so be sure to wait for the breakout.
Look for higher highs and lower lows - the broadening price pattern that gives the formation its name. You should have at least two minor highs and two minor lows touching or nearing the trendlines that outline the pattern. Look for plenty of price crossings within the trendlines. The volume pattern is erratic, increasing in a rising price trend, and receding in a declining price trend.
FIGURE 1: BROADENING BOTTOM. Look for two sloping trendlines that bound an expanding price series.
...Continued in the April 2003 issue of Technical Analysis of STOCKS & COMMODITIES
Excerpted from an article originally published in the April 2003 issue of Technical Analysis of STOCKS & COMMODITIES magazine. All rights reserved. © Copyright 2003, Technical Analysis, Inc.
Return to April 2003 Contents