Chart Lesson 6: Broadening Tops

Broadening Tops

Identification:

*Formation preceded by an upward price trend*

Shape:  The formation looks like a megaphone tilted up with higher highs and lower lows.

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).

Once recognizing the Broadening Tops 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 Bottom Trend (support) line.

If the Breakout Fails:

Go Long and the Low:  Buy after the price turns up off the Lower Trend (support) line.

*Set stop-loss orders $.15 below resistance and $.15 below support after breakouts*

Partial Decline:  Go long.  Add to position after upward breakout

For Best Performance

•          Select patterns in line with the market trend (bull market, upward breakout or bear market, downward breakout).

•          Bear markets decline at a steeper slope than bull markets rise, but the move is not as far.

•          Select patterns in a bull market with upward breakouts for the lowest failure rates.

•          Pick patterns with breakouts near the yearly low.

•          A partial rise or decline correctly predicts the breakout direction most of the time.

•          Select tall patterns.

•          Pick bull market patterns with a falling volume trend and bear market patterns with a rising volume trend.