![]() ![]() It’s as if a partial decline sucks energy from the upward momentum.įigure 1: Broadening bottom. If a partial decline does occur, expect the rise after the breakout to be less than usual (32% rise versus 36% without a partial decline). In a study I did for my book, Trading Classic Chart Patterns, a partial decline correctly predicts an upward breakout in broadening tops 77% (68/88) of the time (using data from mid 1991 to mid 2001). Instead, prices drop quickly a few days later and form a new minor low, completing the real partial decline. Price retraces about 38% of the prior rise then begins moving up and it looks as if the stock will stage an upward breakout. Use stops to limit an adverse move, say $0.15 below the partial decline low.Ĭonsider point A in the figure. If the decline turns at 50% and especially at 62% of the prior up move (B to C), then chances increase that an upward breakout will follow. I have not found a guaranteed way to do this, so it’s a judgment call. The time to buy is when you are sure prices have started rebounding, completing the turn at the bottom of the partial decline. A partial decline suggests an upward breakout on the next price crossing. A partial decline is just as it sounds: Prices drop but do not touch or come near the bottom trendline. Once you have a valid pattern (at least two touches of each trendline), then look for a partial decline like that shown. Volume appears irregular, but usually climbs as prices rise and recedes as prices fall, like that shown. The trendlines should touch at least two minor peaks on the top and two minor valleys on the bottom with little white space in between (good side-to-side price crossings). The pattern sports two trendlines that broaden out over time, one trendline slopes up and the other slopes down. In a broadening bottom, prices enter the pattern from the top (that is, after a downward price trend), but they can exit in either direction. For the latest statistical information, consult my book, Encyclopedia of Chart Patterns, Second Edition Partial Declines: Broadening Bottoms That’s my term for what’s usually called a broadening top, but I found performance differences between tops and bottoms. What does a partial decline look like? Consider Figure 1, a chart of a broadening bottom. When I wrote this in January 2003, we were still in a bear market, and so I concentrated on partial declines - they predict upward breakouts. They forecast the breakout direction from a chart pattern. This article discusses two such tips: partial declines and partial rises. I use stops to limit losses (don’t you?). Sometimes the tip turns out to be a lie, but that’s okay. I use chart patterns in my trading because they give me tips on how a stock will perform. ![]()
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