Technical analysis II

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15. Broadening formations

The theory behind this reversal pattern is when you get five small reversals they are usually followed by a more substantial change. So in the example below, you have:

A broadening formation

In a Broadening Top, reversal 3 must occur at a higher level than reversal 1, and reversal 5 must be higher than reversal 3. Reversal 4 must occur at a lower level than reversal 2.

The underlying idea behind this reversal pattern is that the market is almost out of control and lacking support from well-informed investors. The smart money is bearish on the stock, but it keeps on getting bounced upwards by other investors. Volume is also erratic during this period and does not help with the interpretation of the charts.

Perhaps the best way to view this formation is as if the market is gradually becoming more and more unstable. As the swings get wilder and wilder something is going to break!

1. Average share prices 2. Moving averages 3. Weighted moving averages 4. Where to plot moving averages 5. Interpreting moving averages - the basics 6. Classic interpretation of moving averages 7. Combining short and long term moving averages 8. Moving average convergence/divergence (MACD) 9. Reversal patterns 10. Head and shoulders top 11. Head and shoulders bottom 12. Double top 13. Double bottom 14. Rounding tops and bottoms 15. Broadening formations 16. Wedge formations 17. The momentum indicator 18. The momentum oscillator 19. Rate of change indicator 20. Price minus average 21. Relative strength indicator 22. Conclusion

• Martin Pring's Introduction to Technical Analysis
• Technical Analysis Plain and Simple
• Technical Analysis of the Financial Markets