Broadening Top / Bottom model (Top / Bottom widening) is a relatively popular price model on the market with other names such as Megaphone, Reversed Triangle or Funnels. This model tells us that the market is in a state of confusion. So what do we do when the market falls into this state? The following article not only helps you answer questions, but also guides how to trade with the Broadening Top / Bottom model to achieve the most effective.
What is the Broadening Top / Bottom model?
Broadening Top and Broadening Bottom are two similar patterns, created when prices move in a wider range, continuously creating higher highs and lower lows. than. An extended peak or an extended bottom represents anxiety mixed with indecisive investors after a strong rally or decline.
Broadening Top appears at the top of trends, while Broadening Bottom appears at the bottom of trends.
Broadening Top model characteristics
Broadening Top appears in the uptrend. If we connect the vertices of the model together, we obtain a resistance line. If we connect the bottom of the model together, we get a support line.
The model can end in either up or down. According to statistics, there are 53% of cases where the pattern will break up and 47% of the pattern breaks below.
After the Broadening Top breaks out of support or resistance, the target price's movement is usually equal to the height of the model.
Note that in the Broadening Top model, the price usually touches only two support / resistance lines around 5-6 times before breaking out and developing the trend. Therefore, you need to be mentally prepared when the pattern's support / resistance levels are touched at the fifth time.
Broadening Bottom model characteristics
Broadening Bottom appeared in the downtrend. If we connect the vertices of the model together, we obtain a resistance line. If we connect the bottom of the model together, we get a support line.
The model can end in either up or down. According to statistics, 58% of cases will break through the top and 42% of the cases will break down.
After the Broadening Bottom breaks out of a support or resistance line, the target of the normal price movement is the height of the pattern.
Broadening Top / Bottom trading guide
We will introduce two ways of trading with the Broadening Top model which is a breakout strategy and a reversal trade.
Breakout strategy
For a breakout strategy, we will wait for the price to break out of the pattern and then trade in that direction. Here is an example. In the illustration below, a Broadening Top price pattern has been formed, marked by two red support / resistance lines. Here, when the price breaks below the red support line below, we follow the trend and enter the sell order. To be on the safe side, the profit-taking point will be approximately 70% of the model's height. The stop loss is placed above the support level, which can be 20% - 30% of the height of the model.
Reverse trading strategy
As for the reversal strategy, we will wait for the price to touch one of the 2 support / resistance lines at the 5th time. If in the 5th time the price touches the support / resistance level but is unable to break, we will Wait for prices to cross the third peak / bottom to trade in the opposite direction.
If you find it difficult to understand, please see the illustration below. A Broadening Top pattern was created when prices moved up and down, creating wider peaks and troughs. On touching the 5th resistance line, the price created a Shooting Star candle and could not cross this level. As soon as the price drops below the peak of the 3 marked on the screen, we enter the sell order. Meanwhile, profit-taking points are at the bottom bottom and the stop loss is above point 5.
summary
Trading on a price model is easy and highly likely to succeed. However, the hard part is how you identify the patterns when they appear on the graph. Remember, the Broadening Top / Bottom appeared after a strong up / down trend, initially moved narrowly then widened gradually and the price touched the support / resistance lines about 5-6 times. In addition, when trading the price model, you should incorporate other analytical indicators to increase the efficiency. Good luck!
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Author: Tin Nguyen
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