Below is a six-slide quiz to test your ability to identify right-angled broadening formations and trade them. Captions appear below the pictures in red for guidance, so be sure to scroll down far enough to read them.
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This is an example of a right-angled and ascending broadening formation, outlined in red (A). The bottom of the pattern follows a flat trendline even as the top trend slopes upward. Touches
of both trendlines should total at least five (three of one trendline and two of the other). Volume (B) trends upward 61% of the time, according to new research completed in late 2017.
This broadening pattern breaks out downward when price closes below the bottom of the pattern but the breakout can be in any direction (upward 54% of the time, or about random).
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Find as many broadening patterns as you can. For help, click here.
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This is a broadening pattern, highlighted in red. The pattern has plenty of trendline touches and price crosses from trendline to trendline as one would expect.
At A, the stock makes a partial rise. The rise is supposed to predict an immediate downward breakout (which it does 63% of the time) but doesn't in this example.
4 / 6
Find as many broadening patterns as you can.
5 / 6
The broadening pattern is as shown. Price bottoms at B, at about 35 and rises to breakout upward at A, topping near 48. That's a climb of 37% from the low at B.
Volume at C shows the typical upward trend. Question: Do you trade this pattern? If so, do you go long or short? At what price would you sell?
6 / 6
The broadening pattern is in the lower left corner. If you chose to go short, you probably loss money, especially if you held on. Often shorting works best for stocks
making new lows, not new highs. This chart shows the stock hitting 88 but it went on to 94 and change before reversing. Not shown, but the stock looks to have made a
cup with handle if you'll excuse the long handle. The stock has moved up since then and it nearing 94 again. From this chart, I see no reason to sell.
Had you held onto the stock, you could have doubled your money.