When the price of a security increasingly makes higher highs (1, 3) and lower lows (2, 4) subsequent to two widening trend lines, the Broadening Top pattern is formed. The price is expected to move up or down past the pattern based on which the line is broken first.
The discrimination of a Broadening Top and a Broadening Bottom is that the price of the security is rising earlier to entering the pattern formation.
This formation occurs when unpredictability is high or increasing, and when a security’s price is moving with high unpredictability but little or no direction. It indicates signals investor anxiety and indecision.
How to trade the Broadening Top chart pattern?
When the price breaks out from the top pattern boundary, day traders and swing traders should trade with an uptrend.
Deem buying a security or a call option at the upward breakout price/entry point.
In order to recognize an exit, work out the target price by adding the pattern height (H on the chart) to the breakout price.
The pattern height is distinction between the pattern’s highest high and its lowest low.
To limit likely loss when price suddenly goes in the wrong direction, deem placing a stop order to sell at or the breakout price.
What is a Broadening Top?
A broadening top is a rally to a new high, weakness to an intermediate support level, a second rally to a higher high on increased volume and decline through the intermediate support level, a third rally to a higher high on strong volume pursued by an ultimate fall down.
Since, Broadening Tops are very large reversal patterns; the technical inference is typically intense. The calculated target is consequent by subtracting the height of the pattern from the ultimate breakout level.
Broadening Tops chart pattern at Silver Daily chart
No 1: Pole of the pattern
1. Buy order (long entry)
2. Stop loss
3. Profit target distance (same height as the pole no 1)
4. Target aim (Take profit)
A Broadening Top chart pattern has emerged at the Silver in Daily charts.
The Broadening Tops is a significant reversal pattern that comprises of three extending resistance trend lines.
Generally, the pattern is broken after 5 hits of the Resistance trend lines.
Generally, the price tries to continue in bullish direction preceding the breakout.
Before breaking downwards, the price finishes only partial uptrend.
We have observed that once the price has started retracement and is now expected to break the downward portion of overall size of megaphone.
Wait for the price to rise below the broadening’s lower trend line.”
Enter your trade as soon as the price rises below the broadening s lower trend line.
Once the support breaks, place a buy-order only after the price retests that trend line.
Now the broken support line will become the resistance line.
Place your stop loss above the new Resistance area.
Place your profit target
Measure the size of the broadenings pole. Place your profit target an equal distance above the broadening s breakout. (Entry of our trade)
The chart below is an illustration:
Number 1: Pole of the pattern
Number 2: Area where the resistance line has turned into support
1. Long entry, after the price has bounced off the trend line
2. Stop loss underneath the new support area
3. Take profit distance (same height as pole number 1)
4. Take profit level
An outline of the topic discussed above:
The Broadening top is a comparatively rare formation that looks like an inverted triangle. As an alternative of increasingly narrowing fluctuations in prices, the broadening formation is formed by price swings that are increasingly widening. The difference with the triangle pattern is the change in volume. Volume contracts with the triangle, indicating investor indecision, volume in the broadening top usually expands right along with prices, indicating a unpredictable emotional market.
The most common of these patterns comprises of three successively higher peaks and another line connecting the two lows combine to give the price formation its distinctive pattern.
The combination of wide price swings and increasing volume implies a hyperactive market that's out of control, symptoms of market tops rather than bottoms. As a result, these patterns are rarely found at market bottoms.
The signal that the market has topped takes place when prices fall below the lower low. Prices may again test the third peak but usually don't exceed that level. In certain cases, the third peak might not actually exceed the second peak before prices drop and fall below the second low, providing an early indication that the market is topping.
The broadening top is considered complete once this violation of the second low is made.