Broadening Formations, Right Angled and Ascending - The Basics

AppearanceBroadening formations are a common type of formation that
can show up either in the stock market or trading commodities. It is
defined as having a horizontal bottom with higher highs following an
up-sloping trend line. It can have two breakouts: upward or
downward.Upwards BreakoutsAn upward breakout in a broadening
right-angled and ascending formation is, as a rule, considered a
short-term bearish reversal. This formation behaves better at a bull
market condition since its breakout is going upward. Also, in a bull
market, it tends to meet price target roughly 67% of times, a common
standard between patterns. In a bear market it does not go as good and
that and only meet price target around 43% of the time.Surprising
findings in a right-angled ascending broadening pattern formationA
breakout day gap, contrary to common belief, HURTS performance instead
of helping it. This might happen since, with the gap, the profit is
almost immediately triggering immediate action on most day traders
that tends to end the trade by the end of the day. So, be aware of
that.Furthermore, in general tall and wide patterns perform the best
among the patterns studies. Also, heavy breakout volume increases the
chance of a successful broadening pattern formation to reach its price
target.Downward BreakoutsThis one is pretty much the same as the
upward breakout; it only differentiates itself as the breakout is
downward instead of upward.This one goes better following along a bear
market since it will be breaking downward and it is considered a
short-term bearish continuation pattern. When you are trading this
pattern expecting a downward breakout, you must consider in which kind
of market the pattern is occurring: if it is a bull market, you might
be better of skipping this trade and look for another one since this
patterns has only 32% of chance to reach its price target. In a bear
market you might do better with a 51% chance of meeting its price
target. Still, it is not a good percentage to trade with since you
might as well flip a coin to decide your trade. With that you have 50%
chance of being right and will not lose time trying to figure out if
this a valid formation or not.Conclusion and adviceEven though this
pattern has an upward sloping trend line, it is in fact a BEARISH
FORMATION. So, with that in mind, try to trade that in a bear market
to enhance its capabilities.A common strategy in trading pattern
formations is to wait for the breakout to happen, watch it and then
wait for a pullback to get in thus enhancing the confirmation of the
pattern. Although this is a valid and a good strategy overall, in this
pattern is NOT! Pullbacks hurt performance here and you will be better
off jumping on that train as soon as the breakout starts. Just keep an
eye on it and do not be afraid to get out of the trade if you feel
uncomfortable or if things start to go the other way. Also, pay
attention to a good position sizing and money management.