Last Updated on: 12th February 2021, 06:50 pm
A broadening formation is an example of a consolidation pattern and a highly useful tool in the prediction of the likelihood of a reversal in the direction of a current trend. When found in an uptrend it indicates not a continuation of that trend, but a near-term reversal of the price action.
The broadening formation occurs when the fluctuation within the price produces a series of higher highs and of lower lows that steadily widen over time and are generally thought to be found only in found in topping formations where they are considered to be the result of unrealistic expectations of bullish investors.
Unlike the majority of other consolidation patterns, broadening formations feature increasingly wide ranges and are subject to much greater levels of volatility as time passes. Volume levels increase as the share price rises, which although normally indicates bullish position rallies in this instance usually prove to be very short-lived and the following declines are prone to decimating former support levels leading to an eventual collapse.
Vincent Nyagaka is a Professional Trader, Analyst & Author. He has been actively engaged in market analysis for the past 7 years. He has a monthly readership of 100,000+ traders and has taught over 1,000 students since 2014. Vincent is also an experienced instructor and public speaker. Check out Vincent’s Professional Trading Course here.