You have drawn your trendlines, support and resistance zones. You have scanned for the common chart patterns and none of them are present. You think that there is no opportunity and are about to move on to the next chart.To get more news about WikiFX, you can visit wikifx official website.
Hold on. Chances are, you have not considered this chart pattern. You are not the only one as this chart pattern is often overlooked - the broadening formation chart pattern.
The broadening formation chart pattern comprises of increasing volatility and 2 diverging lines. It usually forms after a significant increase or drop in prices.
Cause
Due to market participants disagreeing significantly on the prices, prices move in a very volatile fashion. This wide range of price area is like a battle zone between buyers and sellers.
In this battle zone, market participants are split in their evaluation of the currency pair. This results in heightened volatility, causing prices to range greatly in this chart pattern before the bulls or bears take full control. Hence, youd see 2 diverging trendlines which is the broadening formation chart pattern.
However, did you know that the breakouts are unpredictable in broadening tops and bottoms？
The lines diverge and looks like a megaphone. They are neither ascending nor descending.
It is also not safe to just trade in the direction of the breakout for (5) and (6) because this battle zone of heightened volatility could be a false break that traps market participants. It can be frustrating to be caught in such a situation.
In this article, we cut through the fluff and zoom into the practical usage of broadening formation chart patterns.