Broadening Bottoms
*Formation preceded by a declining price trend*
Shape:
Looks like a megaphone
Trend Lines:
Upper and Lower trend lines slope opposite of each other. The upper line connects higher highs (resistance) while the lower line connects lower lows (support)
Touches:
At least 2 minor highs and 2 minor lows to be valid
*Be aware of a dead-cat bounce*
Trading Tactics:
Price Target:
Compute the difference between the highest high and the lowest low in the formation. Add or subtract this value from the most recent high or low. The result is the target price for the upward and downward breakouts.
Once recognizing the Broadening Bottoms formation:
When the price is going up:
Buy the Breakout Up:
Set a buy order above the Upper Trend (resistance) line
If the Breakout fails:
Go Short at the High:
Sell short after the price starts heading down from the top of the trend line.
When the price is going down:
Sell the Breakout Down:
Set a sell order below the Lower Trend (support) line
If the Breakout Fails:
Go Long at the Low:
Buy after the stock makes it's turn at the lower trend line.
Partial Decline or Rise:
A partial decline from the top, or a partial rise from the bottom is a reliable breakout signal. On a partial decline from the top, go long; on a partial rise, go short.
Hello, enjoying this site so far! question, is there any large psychology of the masses that tries to explain why some of these patterns do form? or what goes on in the heads of the mutual fund managers as they inadvertently create this megaphone trend??
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