Broadening Formation

A technical analysis term for when a stock trades in an increasingly wide range, marked by higher highs and lower lows with no clear direction.

For most of the year, Bippity Boppity Corp. (Ticker: BPT) traded in a narrow range of $21-$25 per share, with an average price of $23. Suddenly, after receiving an unexpected “wyd?” text from her ex-boyfriend (BPT’s CEO), Carol began bidding shares of BPT up to $27 before realizing there was a reason she refused to pay that much before, bidding it down and depressing the price to $19.

But then she became hopeful that the stock might perform better if she gave it another chance, and bid the price up to $30. Shortly afterward, Carol’s best friend from business school, Nicole, reminded her that stocks always return to their trading patterns, so she bid the stock back down to $18.

Eventually, Carol realized the broadening formation she had created and ended the trading day by selling her BPT shares for $23. Busy day for Carol.