Broadening Formation

The broadening formation is the most difficult chart pattern to trade, for the support and resistance line are moving apart like an expanding triangle. It shows price moves to the upside and downside that clarify pictures of consecutive and alternating new highs and lows before a new trend direction finally turns out.

The possibility of a reversal in the current trend is predicted by a Broadening Formation. It can be identified by drawing a diverging trend lines which connects a series of widening peaks and troughs. It is common to see Broadening Formation at the end of a prolonged up trend. At such times, price tends to behave like an abrupt way or manner with wild swings in both up and down directions.

During this reversal pattern, the market is almost out of the control and lacks support from well informed investors. The smart money is bearish on the stock, nevertheless it keeps on getting bounced upwards by other investors.

A trader investing at breakouts will be stopped out at each new high or low. The only way to invest safer is to wait until there are three peaks or valleys or troughs. Broadening Formations can often be found at long-term tops or bottoms.