Broadening Tops trading strategy
For a broadening top, the price trend should be leading up to the
formation, not down as in its bottom counterparts. This is just an arbitrary designation
I have chosen to distinguish the two formations.
Shape and trend lines. Trend lines drawn across the peaks and valleys
resemble a megaphone. Higher highs and lower lows make the formation obvious
to those versed in spotting chart patterns. The slope of the trend lines is
what distinguishes this formation from some others. The top trend line must
slope up and the bottom one must slope down. When one of the two trend
lines is horizontal or nearly so, the formation classifies as a right-angled
ascending or descending broadening formation. When the two trend lines
slope in the same direction, the formation is a broadening wedge.
Touches.There should be at least two minor highs and two minor lows
before the chart pattern becomes a broadening top. three minor
highs touching the top trend line and four minor lows either nearing or touching
the bottom trend line. The minor highs and minor lows need not alternate as
prices crisscross the formation.
Breakout. A breakout happens when prices move outside the trend-line
boundaries or follow a trend line for an extended time. When a breakout occurs,
I consider the actual breakout price to be the value of the highest peak in the formation.
Measure rule. The first thing to consider about trading tactics is the
measure rule. The measure rule predicts the price to which the stock will
move. For many formations, one simply computes the height of the formation
and adds the result to the breakout price. Broadening formations are not much different.
buy trading signal Go long at the low. Since a broadening formation requires two points
along the top trend line and two along the bottom before the formation appears,
sell forex trading signal Go short at the high Sell short after prices start heading down at the top.
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