Burlington Northern Santa Fe Corp (BNI)

Burlington Northern Santa Fe Corp (BNI) has formed a broadening top formation. This type of formation is not covered in our tutorial, since it may be more tricky to trade. But we spotted it and it looks intriguing. If you are interested in how you might trade this formation read on.

Here's the premise for trading this formation. You calculate the height of the formation by subtracting the highest high from the lowest low in the formation. In the case of BNI, roughly that would be 87.5 minus 75 equals a formation height of 12.5. If the stock broke out below the bottom trend line, you'd subtract the height of the formation from the lowest low in the bottom trend line to calculate the target price. Again taking BNI as an example, that would be 75 minus 12.5 for a target price of $62.5/share. This assumes of course that a break occurs tomorrow. Also, I rounded the numbers for BNI for simplicity. You have to refine these numbers yourself.

For broadening top stocks that are trading near the top of the trend line, you calculate, the target price after a break out by adding the height of the formation to the highest high in the top trend line.