Broadening Top - Reversal Chart Pattern

Broadening Top Definition

A Broadening Top is powerful chart reversal pattern. It is comprised of three peaks at successively higher levels and, between them, two bottoms with the second bottom lower than the first. Broadening tops occur frequently in the later part of over extended bull markets. When a broadening top is under construction, there will be irregular trading activity with a number of volume spikes. Each reactive low off the respective high comes with high volume and turnover, thus giving the appearance that the world is coming to an end. However, after each sell off, a rally will begin that will carry the stock to higher highs. Thus making it hard to sell the break of new lows, or buy the break to new highs.

How to trade a Broadening Top

The best method for trading a broadening top chart pattern is to wait for a break of the second bottom in the formation, after the third and final peak has been put in. The price target for a broadening formation is 2/3 from the beginning of the bull move to the highest peak of the broadening top formation.

Example of a Broadening Top Formation

Broadening TopBroadening Top

 


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