Description:
The Broadening, Right-Angled and Ascending pattern is a unique chart formation that serves as a bearish reversal indicator. This pattern is characterized by a horizontal resistance line at the top and an ascending support line that diverges from the resistance, creating a right-angled broadening formation. The pattern reflects increasing volatility and indecision in the market, with price swings becoming progressively wider. It typically appears during an uptrend, suggesting that the bullish momentum is losing strength as sellers begin to push back with greater force.
Input Parameters:
- Time Span: Defines lookback period.
- Bands: Gives the ability to add ATR, Standard Deviation, Constant, or Percentage bands to the trendlines.
Use Cases
- Bearish Reversal Signal: The completion of the pattern, particularly with a price break below the ascending support line, can indicate a potential shift from an uptrend to a downtrend. Traders might consider this a cue to take short positions or exit long positions.
- Volume Consideration: An increase in trading volume on the breakout below the ascending support line can reinforce the bearish reversal signal, suggesting stronger conviction among sellers.
- Stop-Loss Strategy: To manage risks associated with trading this pattern, stop-loss orders are often placed just above the pattern's highest point or above the horizontal resistance line to protect against a false breakout or a return to bullish momentum.
- Setting Profit Targets: Profit targets for short positions based on this pattern can be determined by measuring the height of the formation at its widest point and projecting that distance downward from the breakout point. This method estimates the potential extent of the downward move following the pattern's completion.
Traders utilizing the Broadening Formation in their strategy should be cautious of potential false breakouts and consider confirming signals from other indicators or analysis methods to increase the reliability of their trades.
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