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BROAD FORMATION


Broadening Formations

05/22/00 05:43:09 PM
by Jayanthi Gopalakrishnan

Broadening formations, also known as broadening triangles, are defined as a series of higher highs combined with lower lows. Trading volume tends to expand during the widening phase, and signal a breakdown of the current pattern.

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The broadening formation can be either a consolidation (correction period), or a complete reversal. You will not come across broadening formations often, but when you do they signify important support and resistance levels. The upper trendline acts as a resistance level while the lower trendline acts as a support level. Generally when you see this formation starting, extend both trendlines to determine which way prices will move. A break in any of the trendlines would indicate an entry point for a trade.

The simplest method to utilize broading formations is to go long when prices turn away from the support line. Always place a stop 1/8 to 1/4 point above this line. You can go one step further by placing a price target for exiting your position. Take the difference between the high and low point and add this difference to either the high or low.

The DJIA weekly chart showing a broadening top formation.
Graphic provided by: MetaStock.
 



Jayanthi Gopalakrishnan


Title: Editor
Company: Technical Analysis of Stocks & Commodities
Address: 4757 California Ave SW
Seattle, WA 98116
Website: Traders.com
E-mail address: Jayanthi@traders.com

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