Trading Broadening Swing

An important opportunity the "Broadening" patterns offer is trading the last swing. The number of swings in "Broadening" patterns is five. If the trend formation in the pattern is to the upside, then trading the fifth swing would be downside and can be traded from the top trendline. Similarly, if the trend direction before the pattern is to the downside, then the fifth swing will be to the upside. Keep in mind that "broadening" patterns are not infallible. However, they have a high success rate depending on where and when they form in a trend.

Trade: In "Broadening tops," the potential trade is to go short at the beginning of the fifth swing. When the prices reach the top of the trend line, enter a short position when prices start declining and closed below the previous low. Similarly, in "broadening bottoms," a long trade is possible at the lower trend line. Enter a long trade when prices start making higher highs above the lower trend line and when the price closes above the previous high.

Target: A typical target for the last swing in a "Broadening" pattern would be the trend line on the opposite side of the pattern. Historically, this is the widest part of the pattern and is a very profitable setup.

Stop:

"Broadening" patterns are not infallible. They do fail and have significance as to how they fail. The pattern may be indicating a breakout/breakdown rather than a reversal of the trend. A "stop" order is placed if prices reverse and trade outside the trend lines.

Broadening Top

Stop

Broadening Top

Stop

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