Broadening Formation

The broadening formation is a kind of triangle, but not usually included with the three previous examples. That is because it behaves totally differently to the others. As the name tells you, this triangle is the other way round, with the trendlines opening out as time passes, rather than converging to an apex. It sometimes also called a megaphone top.

broadening-formation
 

You get none of the benefits of the others, with price and time constrained and limited by the trendlines that surround the price. Instead, this is a chaotic time in the market, and you are best not to trade it.

You will recall that the previous converging triangles tend to close down the chart action, with lessening volume as the price oscillates less and less over time. It is not so in the case of the broadening formation, when you can expect the volume to increase as the triangle broadens and the price swings more wildly.

All in all, it represents a market which is out of control, with a lot of public participation, and wild emotional surges. All the activity in the market – which in itself means you are more likely to see this in an uptrend – makes it hard to know where and when the price will break out, but it’s most often associated with a bearish move, as drawn above, because of its usual association with an uptrend.

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