Global Investor | GI Bookshop | Harriman House | Holborn | Politicos | Financial Conferences | Finance Glossary | Investor Education | Derivatives | Financial Gurus | Tracker 101

Technical analysis II

Introduction| Course| Q&As | Recommended reading| Quiz |
1  2  3  4  5  6  7  8  9  10  11  12  13  14  15  16  17  18  19  20  21  22   
69300000

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:

Reversal 1: change from rise to fall
Reversal 2: change from fall to rise
Reversal 3: change from rise to fall
Reversal 4: change from fall to rise
Reversal 5: change from rise to substantial fall

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!

Recommend Reading

Book offers!

The Greatest Trade Ever
The Greatest Trade Ever
Gregory Zuckerman
Our price: £15.00
Normally: £25.00
Too Big to Fail
Too Big to Fail
Andrew Ross Sorkin
Our price: £10.49
Normally: £14.99
Winning spread betting strategies
Winning spread betting strategies
Malcolm Pryor
Our price: £24.99
Normally: £24.99
Google
Web www.incademy.com