Useful Information Of A Broadening Bottom Pattern For The Stock Market - Part 2

Useful Information Of A Broadening Bottom Pattern For The Stock Market - Part 2

How Long Should It Take To Make A Valid Formation

Unusually, it takes from one to four months to make a valid formation. Less than that and it is not a valid pattern, more than that, than it has lost its predictability. The market does have a memory, but it is not that long.

Formation end to breakout

It can take from three to five weeks for the stock to break and close above the trend line after the last time it touched. As a rule, the downward breakout happens way faster according to the old wisdom that "bulls take the lift, bears jump". So just be aware that even if it is breaking during the day the upper or lower trend line, this is just a heads up from the pattern. Just keep an eye on it and maybe but at the end of the day or the next day. You might lose a bit of its profits but you have the edge when trading like that. Always think first of what would happen if the stocks went completely the other way as soon as you bought it.

Yearly Position

Most of the times, it is better to trade this pattern following along what is happening in the market overall. So, if the bulls are ruling the scene, search for upward breakout. If the bears are in control, then search for downward breakouts. Also, pay attention to where the stock is relative to the last 12 months: it will be usually a more reliable pattern if the stock is trading at its yearly low, enhancing the chances of a successful upward breakout which is, by the way, the most trustworthy form of this pattern.

Gaps

Gaps play a major role in most patterns, and this one is no different. BUT, in this case, gaps on a bear market have way more possibility of increasing performance of the pattern. On the other hand, in a bull market, a gap either does not make a difference or it can even hurt performance.

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