An important opportunity the “Broadening” patterns offer is trading the last swing. The number of swings in “Broadening” patterns is five. If the trend formation in the pattern is to the upside, then trading the fifth swing would be downside and can be traded from the top trendline. Similarly, if the trend direction before the pattern is to the downside, then the fifth swing will be to the upside. Keep in mind that “broadening” patterns are not infallible. However, they have a high success rate depending on where and when they form in a trend.

Trade: In “Broadening tops,” the potential trade is to go short at the beginning of the fifth swing. When the prices reach the top of the trend line, enter a short position when prices start declining and closed below the previous low. Similarly, in “broadening bottoms,” a long trade is possible at the lower trend line. Enter a long trade when prices start making higher highs above the lower trend line and when the price closes above the previous high.

Target: A typical target for the last swing in a “Broadening” pattern would be the trend line on the opposite side of the pattern. Historically, this is the widest part of the pattern and is a very profitable setup.

Stop: “Broadening” patterns are not infallible. They do fail and have significance as to how they fail. The pattern may be indicating a breakout/breakdown rather than a reversal of the trend. A “stop” order is placed if prices reverse and trade outside the trend lines.

Trading Broadening Swing Pattern

Trading Broadening Swing Pattern

The example above illustrates a “Broadening Swing” trade from Russell Emini (ER2) 15 minutes chart. The ER2 chart shows two significant swings in a broadening channel as it made higher high swings and lower low swings. After two complete swings, ER2 presented an opportunity to trade the last swing from 4 to 5. When prices reach the bottom trend line at marker 4, wait for a reversal bar ( close above the previous high) before entering the trade.

  1. Enter a “long” trade on the bar above the previous bars high.
  2. Place a “stop” order below the trend line low.
  3. Book partial profits at the mid channel line.
  4. Target is set at the upper trend line.

Trading Broadening Breakouts

Trading Broadening Breakdown

The example above shows a “Broadening” pattern from the AMZN daily chart.

In September 2005, AMZN developed a series of higher highs and. lower lows to form a “Broadening” pattern.

The last swing of AMZN started in December, 2005 at $50 and reached the other end of the pattern at $33 (by May 2006).

AMZN closed outside the “Broadening” channel in May signaling a potential reversal. Most Broadening patterns result in 5th swing continuation after breakoutbreakdown.

AMZN temporarily reversed its 5th swing from May to June 2005. In late June, AMZN traded below the lower trendline for a continuation of Broadening pattern.

Trading Broadening Bottom

Trading Broadening Bottom

The example above shows a Broadening bottom pattern in intra-day trading from the Dow Emini futures (YM) 610 tick chart. On May 06, 2007 Dow futures sold off and closed at 13 100 levels. On May 07,2007, YM attempted for a brief rally but continued its prior trend and closed at 13090 (2). YM attempted another rally to close above prior swing high (1) and sold off again to close below prior swing low (2) at 13080 level (4). The intra-day swings gave a “Broadening bottom” trading opportunity for the 5″ swing.

  1. Enter a “long” trade above the previous bars’ high at 13092.
  2. Place a “stop” order below the low of the prior swing at 13078 (4).
  3. Target the 5th swing above the prior swing’s high (3) at 13 150. A partial position may be exited at the mid channel level (Target 1).