Broadening Formations Right Angled and Ascending and trading signals
Shape. The overall shape of the formation looks like a megaphone with one side horizontal.
Horizontal bottom support line. The bottom of the formation follows
a horizontal trend line, while an up-sloping trend line bounds the top side.
Up-sloping top trend line. The top trend line touches at least two
minor highs. The horizontal trend line also shows two minor low touches as
prices descend to the trend line. The various touch points help define the boundary of the formation.
Premature breakouts. I define premature breakouts to be prices that
close outside the formation boundary but return before the formation ends
Price action before breakout. In some ascending broadening formations,
prices make higher highs and form a solid, horizontal base at the start but
then move sideways for many months. Eventually, prices rise above the formation
top or slide through the bottom trend line and stage a breakout.
Downward breakout. Once a breakout occurs, a pullback sometimes
happens. Prices may continue moving up but they usually bounce off the lower
trend line and continue back down. A pullback gives investors another opportunity
to short the stock or add to their short position. Before shorting, however,
make sure the pullback is complete and prices are declining once again.
Measure rule. The measure rule predicts a target price. Compute the
height, the difference between the highest high and the horizontal trend line
in the formation. For upward breakouts, add the height to the highest high in
the pattern. For downward breakouts, subtract this value from the value of the
horizontal trend line. The result is the target price.
Wait for confirmation. If you own a forex pairs and it shows a broadening
pattern, get worried. Many times the breakout will be downward, so be ready
to sell. Only sell when the price closes below the horizontal trend line. Premature
breakouts are rare, but they do occur. Do not be fooled; wait for a close
below the lower trend line.
Intraformation forex trading signals . If the pattern is tall enough, consider trading
between the two trend lines. Buy after prices bounce off the lower trend line
and sell after they turn down at the top. If you are lucky, the pattern will breakout
upward and you can ride prices even higher. Use progressive stops to protect
your profits. When the fx climbs above the nearest minor high, raise
your stop to just below the prior minor low. That trading strategy should give the
forex pair or gold price plenty of wiggle room.
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