Below is a seven-slide quiz to test your ability to identify a right-angled and descending broadening formation (RABFD, for simplicity) 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 a right-angled and descending broadening formation. The top is horizontal or nearly so, with at least 2 trendline touches. The bottom trendline slopes
downward and diverges from the top trendline. Look for at least 2 touches of this trendline, too, but one trendline should have 3 or more touches. Price should cross the pattern from side to side,
filling the space with movement (little white space). A rising volume trend (such as shown) results in the best post-breakout performance (on average).
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Find as many descending broadening formations as you can. For help, click here.
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This is the pattern I found. Point A is close enough to the top trendline to be called a touch.
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Try again! Find as many descending broadening formations as you can.
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Here's the broadening pattern. The spike at A is a partial rise, suggesting an immediate downward breakout. Partial rises work half the time.
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This chart shows price did close below the line at D, but rebounded to form a more robust partial rise (B). Price has dropped and closed below the green line at C,
staging a downward breakout. Do you buy a new long position, hold an existing position, or sell short a new position? If price drops, where do you think it'll stop? I show 4 possible
support areas, EFGH, along with the associated price (E, for example is at $23, H is at $19).
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Price bottomed, matching line G at 20. Notice the stock bottomed at round number 20, a common area of support (10, 20, 30, and so on).