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trade by using Broadening Bottoms pattern
Price trend. As mentioned earlier, a declining price trend precedes a
broadening bottom. Even if prices rise just before the formation begins, ignore
it. It is still a bottom. This arbitrary designation also makes intuitive sense: A
bottom should appear at the end of a downtrend, not when prices are climbing
to the moon.
Shape. The shape of the formation is distinct. It reminds me of chaos
theory where small disturbances oscillate back and forth, then grow unbounded,
wreaking havoc. In the stock market, price reaches a new high then
crosses over and makes a new low, creating the broadening pattern. When you
draw a trend line across the minor highs and another connecting the minor
lows, the formation looks like a megaphone.
Trend lines. The two trend lines drawn across the minor highs and lows
are important. The top trend line should slope up; the bottom one should
slope down. The diverging trend lines distinguish the broadening bottom from
other types of formations, such as the right-angled broadening formation
or the broadening wedge . So it is important that each trend line has a
slope that is opposite the other.
Touches. A broadening bottom needs at least two minor highs and two
minor lows to be a valid formation. Anything fewer means you are incorrectly
identifying the formation. What is a minor high or low? A minor high is when
prices trend up, then drop back down, leaving a clearly defined peak. A minor
low is just the same thing flipped upside down: Prices move lower, then head
back up leaving a clearly defined valley shows five minor highs or
lows, labeled by numbers. The odd numbers tag the minor highs and the even
numbers are the minor lows. Let me stress that the minor highs and lows need
not be alternating.
Breakout. The breakout point is difficult to identify in a broadening formation
as it develops. I look for the place where price pierces the up or down
trend line or makes an extended move. If price pierces the trend line, then the
penetration point becomes the breakout point. If prices move up and follow
along the top trend line without piercing it, then I backtrack to the prior minor
high and draw a horizontal line forward in time until prices cross it. When that
happens, that is the breakout point.
Measure rule. The first tactic is to determine how much money you are
likely to make in a fx trading signals . The measure rule helps with the prediction. Subtract
the highest high from the lowest low in the formation to give you the formation
height. Then add the value to the highest high to get the target price for
upward breakouts and subtract the height from the lowest low for downward
breakouts.
Go long at the low. Once you have uncovered a broadening bottom,
with two minor highs and two minor lows, you can think about trading signals it.
When the price bounces off the lower trend line, buy the forex . Sell when
prices turn down. The downturn may occur as a partial rise partway across the
formation, or prices may cross completely to the other side, touch the top
trend line, and head down. Remember, the formation may stage an upward
breakout, so do not sell too soon and cut your profits short.
Go short at the high. The trading signals for downward breakouts is the
same. When prices touch the top trend line and begin moving down, short
the forex .
Short stop. Place a stop-loss order above the highest high in the formation,
then pray that prices decline.
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trade by using Broadening Bottoms pattern
Price trend. As mentioned earlier, a declining price trend precedes a
broadening bottom. Even if prices rise just before the formation begins, ignore
it. It is still a bottom. This arbitrary designation also makes intuitive sense: A
bottom should appear at the end of a downtrend, not when prices are climbing
to the moon.
Shape. The shape of the formation is distinct. It reminds me of chaos
theory where small disturbances oscillate back and forth, then grow unbounded,
wreaking havoc. In the stock market, price reaches a new high then
crosses over and makes a new low, creating the broadening pattern. When you
draw a trend line across the minor highs and another connecting the minor
lows, the formation looks like a megaphone.
Trend lines. The two trend lines drawn across the minor highs and lows
are important. The top trend line should slope up; the bottom one should
slope down. The diverging trend lines distinguish the broadening bottom from
other types of formations, such as the right-angled broadening formation
or the broadening wedge . So it is important that each trend line has a
slope that is opposite the other.
Touches. A broadening bottom needs at least two minor highs and two
minor lows to be a valid formation. Anything fewer means you are incorrectly
identifying the formation. What is a minor high or low? A minor high is when
prices trend up, then drop back down, leaving a clearly defined peak. A minor
low is just the same thing flipped upside down: Prices move lower, then head
back up leaving a clearly defined valley shows five minor highs or
lows, labeled by numbers. The odd numbers tag the minor highs and the even
numbers are the minor lows. Let me stress that the minor highs and lows need
not be alternating.
Breakout. The breakout point is difficult to identify in a broadening formation
as it develops. I look for the place where price pierces the up or down
trend line or makes an extended move. If price pierces the trend line, then the
penetration point becomes the breakout point. If prices move up and follow
along the top trend line without piercing it, then I backtrack to the prior minor
high and draw a horizontal line forward in time until prices cross it. When that
happens, that is the breakout point.
Measure rule. The first tactic is to determine how much money you are
likely to make in a fx trading signals . The measure rule helps with the prediction. Subtract
the highest high from the lowest low in the formation to give you the formation
height. Then add the value to the highest high to get the target price for
upward breakouts and subtract the height from the lowest low for downward
breakouts.
Go long at the low. Once you have uncovered a broadening bottom,
with two minor highs and two minor lows, you can think about trading signals it.
When the price bounces off the lower trend line, buy the forex . Sell when
prices turn down. The downturn may occur as a partial rise partway across the
formation, or prices may cross completely to the other side, touch the top
trend line, and head down. Remember, the formation may stage an upward
breakout, so do not sell too soon and cut your profits short.
Go short at the high. The trading signals for downward breakouts is the
same. When prices touch the top trend line and begin moving down, short
the forex .
Short stop. Place a stop-loss order above the highest high in the formation,
then pray that prices decline.
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