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.