Broadening Formation: The Expanding Volatility Pattern

Broadening formations are continuation patterns that signal volatility expansion before the trend resumes. They have a 55% success rate, but when they work, they deliver substantial moves. The key is recognizing the pattern fully before trading it.

What Is a Broadening Formation?

A broadening formation is a pattern where:

1. A trend is in place (uptrend or downtrend)
2. Price begins to swing wider (higher highs and higher lows in uptrend; lower lows and lower highs in downtrend)
3. The swings expand progressively like an opening triangle
4. Volume increases as the pattern expands
5. Price eventually breaks out beyond the widest extreme
6. The trend continues in the direction of the breakout

The pattern signals that momentum is building before the trend accelerates.

Visual Pattern: Uptrend Broadening Formation

Uptrend:          ↑ ↑

Expanding:        ↑   ↑
                 /     \
                ↑       ↑

Widest:          ↑       ↑
                /         \
               ↑           ↑
             (Widest point)

Breakout:        ↑ ↑ ↑ ↑
                (Above widest high, trend continues)

Key Characteristics

Expansion Rate The pattern expands over 3-8 weeks. Faster expansions break sooner. Slower expansions take longer but are often stronger.

Volume Volume increases as the pattern expands. Volume should spike on the breakout (confirming). Low-volume breakouts often fail.

Width The widest point of the pattern defines your target. You measure the maximum width (highest high to lowest low) and project it from the breakout point.

Breakout Direction The pattern doesn’t predict direction—it just signals expansion. The breakout can occur from the top or bottom of the pattern, in either direction.

How to Trade a Broadening Formation

Identification

1. Identify a trend (uptrend or downtrend)
2. Watch for expanding highs and lows
3. Mark the widest extremes
4. Wait for price to exceed the previous widest extreme

Entry Enter when price closes beyond the widest extreme with higher volume. You have two approaches:

Aggressive Entry: Buy the breakout immediately. Risk: Higher, faster entry Reward: Catch the full move

Conservative Entry: Wait for pullback to the widest extreme, then enter on rebound. Risk: Lower, you’ve seen confirmation Reward: Miss some upside, but safer entry

Stop Loss Place your stop just beyond the opposite extreme of the pattern. If the widest high is 1.1000 and widest low is 1.0800, your stop on an uptrend breakout is below 1.0800.

Profit Target Measure the width (1.1000 - 1.0800 = 200 pips). Project this distance from your breakout point.

If you break above 1.1000, your target is 1.1000 + 200 = 1.1200.

Real Example

AUDUSD is in a strong uptrend. Over 5 weeks, the swings expand dramatically:

• Week 1: High 0.7200, Low 0.7150 (50-pip range)
• Week 2: High 0.7250, Low 0.7100 (150-pip range)
• Week 3: High 0.7300, Low 0.7050 (250-pip range)
• Week 4: High 0.7320, Low 0.7000 (320-pip range)
• Week 5: High 0.7350, Low 0.6950 (400-pip range)

The widest point: 0.7350 (high) to 0.6950 (low) = 400 pips.

Price breaks above 0.7350 with high volume.

You enter long at 0.7355. Stop: 0.6950 (400 pips below) Target: 0.7350 + 400 = 0.7750 (400 pips)

Risk = 400 pips. Reward = 395 pips. Ratio = 1:1 (acceptable for a clear pattern)

Price rallies to 0.7750. You close 395 pips profit.

Why Broadening Formations Work

Volatility Increase: The expanding swings signal that traders are increasingly uncertain. This uncertainty often precedes a strong directional move as one side gains conviction.

Momentum Building: As the pattern expands, more traders get trapped on the wrong side. When the breakout occurs, those traders capitulate and fuel the move.

Trend Continuation: Broadening formations are continuation patterns, not reversal patterns. The breakout is usually in the direction of the original trend.

Broadening Top vs. Broadening Formation

Broadening Top (Reversal Pattern)

• Uptrend is in place
• Pattern expands but reverses DOWN after
• High failure rate (difficult to trade)

Broadening Formation (Continuation Pattern)

• Uptrend is in place
• Pattern expands and CONTINUES UP after
• Better success rate (55%)

Make sure you have the continuation pattern, not the reversal pattern.

Common Mistakes

Trading Before Full Expansion Entering after the pattern has only expanded for 1-2 weeks is premature. Wait for at least 3 weeks of clear expansion before trading the breakout.

Confusing Broadening Patterns A broadening top looks similar but reverses. Make sure you have a continuation pattern by confirming the trend continues after the breakout.

Target Too Close The entire width of the pattern should be your target distance. Don’t target only 50% of the width.

Ignoring Volume on Breakout High volume on the breakout is critical. Low-volume breakouts often fail. If you see a breakout but volume is low, skip it.

Not Reversing on Failed Breakouts If price breaks above the widest high but reverses back into the pattern within 2 candles, the pattern failed. Your stop should exit you automatically.

Advanced: Broadening Formations + Moving Averages

Combine broadening formations with moving average confirmation:

• 50 EMA should slope higher (uptrend)
• 200 EMA should slope higher (long-term uptrend)
• Price should be above both

If price breaks out of the broadening formation AND price is above both moving averages, your conviction is higher.

Journaling Broadening Formation Trades

1. Log Expansion Duration How many weeks did the pattern form? Longer = stronger.

2. Record Widest Extremes Highest high and lowest low. This defines your target.

3. Document Volume Was volume increasing as the pattern expanded? Was it high on the breakout?

4. Note Entry Type Aggressive breakout or conservative pullback?

5. Track Target Achievement Did price reach the full width projection? How far?

6. Record False Breakouts Did price break out but reverse back into the pattern? These teach you which patterns are weak.

Tools

Use the Pip Calculator to calculate position size based on your wide stop (which matches the pattern width). Broadening formations have large stops, so position sizing must compensate.

Final Thought

Broadening formations are continuation patterns that signal volatility expansion. They’re less reliable than reversals (55% vs. 65-70%) but when they work, they deliver substantial moves.

The traders who win with broadening formations:

1. Wait for full expansion (3+ weeks, clear widening)
2. Trade the breakout with volume confirmation
3. Set targets at the full width of the pattern
4. Keep stops tight at the opposite extreme
5. Journal volume and expansion rate to see which formations work best

Watch for broadening patterns forming on your daily charts. Once you identify the widest extremes, wait patiently for the breakout. When volume spikes, enter with confidence.