Broadening Formation

A broadening formation is an example of a consolidation price pattern used in technical analysts. It is a useful tool for predicting the likelihood of a reversal in the direction of a current trend. A broadening formation is characterized by increased price volatility and is diagrammed as two diverging trend lines, an uptrend line and a downtrend line. When an uptrend occurs, it does not indicate that the trend continues but it is a near-term reversal of the price action.

When price fluctuates caused by a series of higher highs and lower lows that widen steadily over time, the broadening formation occurs, and it is generally believed only to be found in the formation of tops, where they are considered to be unrealistic expectations for bullish investors.

Unlike most other consolidation patterns, broadening formations is characterized by increasing wide range and greater volatility as time passes. Trading volume increases with rising prices. Normally this is bullish but rallies prove very short-lived, declines “”take-out”” previous support levels and eventual collapse.