The Simple Moving Average Meets Broadening Formation: The Hidden Strategy Traders Miss

The Forex market is a bit like a dance club—everyone wants to move, but only a few really know the steps. You’ve probably heard of using a Simple Moving Average (SMA) in your trading strategy, and maybe you’ve even looked at broadening formations, those expanding megaphone-like patterns that scream volatility. But what if I told you there’s an unconventional way to combine these two that could give you an edge sharper than a freshly cut diamond? That’s right, I’m going to take you behind the velvet rope and show you how to use the SMA alongside the broadening formation to unlock hidden opportunities in the Forex market.

Before we get into the good stuff, let me ask you something—how often have you felt like you’ve just bought into a trade at the wrong time, like that friend who always shows up to the party when everyone else is leaving? Yeah, me too. But here’s where the magic of this strategy can change things.

Broadening Formations: A Sign That Big Moves Are Brewing

Let’s talk about broadening formations first. These patterns look like megaphones and occur when price swings get increasingly wider over time. Imagine someone gradually turning the volume knob up during your favorite song—that’s what’s happening with volatility. The market is trying to say, “Get ready; something big is coming!”

Most traders make the mistake of getting jittery here, trying to predict which way the price will break. But here’s the twist: instead of betting on the direction outright, combine your analysis with an SMA to identify ideal points for entry and exit—that’s the secret sauce.

Simple Moving Average (SMA): The Chill Indicator That Keeps You in Check

While the broadening formation is the loud friend at the party, the SMA is the one quietly giving you the side-eye, reminding you not to make a fool out of yourself. The SMA smooths out the price action, so instead of chasing every flashy move, you can see the bigger picture—the trend direction.

The Trick to Combining SMA with Broadening Formation

Here’s where it gets fun. A lot of traders watch the SMA—particularly the 20 or 50-period SMA—to help determine market bias. But in a broadening formation, the SMA can help you figure out when the volatility is your friend and when it’s about to betray you.

Picture this: the price is dancing along the lower boundary of the broadening formation and just bounced up to cross the SMA. This is your green light. It’s like when someone opens the door just as you’re debating whether to leave the dance floor—it’s your cue to make a move with confidence.

On the flip side, if the price crosses below the SMA at the upper boundary of the broadening formation, it’s time to think about taking your profits before the bouncers (read: the big institutions) throw you out of the club.

Why Most Traders Get It Wrong (And How You Can Avoid It)

Most traders either get stuck trying to predict a breakout direction or blindly follow the SMA without context. But what separates the pros from the rest is the ability to put these tools together in the right way. When you see price consistently respecting the SMA within a broadening formation, you’re essentially watching a battle of nerves. The SMA acts like a referee, showing you when momentum has shifted and when volatility is providing you with opportunities instead of risks.

A Case Study: EUR/USD Breakout That Almost Everyone Missed

Let’s break down a recent example involving the EUR/USD pair. In early September, a broadening formation emerged while the 20-period SMA tracked underneath the price swings. Most traders were caught trying to catch tops and bottoms, effectively treating the market like a trampoline. But if you had simply followed our strategy—buying when price bounced off the lower boundary and crossed above the SMA—you’d have caught a move worth around 120 pips within a week. Not bad for a week’s work, right?

The Forgotten Strategy That Outsmarted the Pros

The truth is, experienced traders don’t always look for new strategies—sometimes, they just apply classic tools in a new way. The broadening formation paired with SMA is one of those classic-but-effective combinations that has been hiding in plain sight.

Imagine it like this: you’re trying to find a way out of a maze, and most people keep running into the same dead ends. But you? You’ve got an aerial view—the SMA—that lets you see the path without falling for the false signals of market noise. That’s what makes this strategy so powerful.

How to Predict Market Moves with Precision

If you want to get ninja-level precise with this approach, consider using multiple SMAs—say, a 20-period for short-term trend and a 50-period for a broader perspective. When the price crosses the 20-period SMA at the lower boundary of the formation, that’s your cue for a quick entry. If the price also crosses above the 50-period SMA, it’s a sign that a bigger trend reversal might be in the works. In this way, you not only play the short-term move but are also positioned for a potential longer-term play.

Expert Quote: Wisdom from the Pros

According to Kathy Lien, managing director of BK Asset Management, “Broadening formations often signal increased investor indecision, which means more explosive moves when the market finally picks a direction. The SMA provides that steady perspective, showing where traders can ride the wave safely.” And she’s not wrong—when the market is all over the place, the SMA can be your guiding star.

Elite Tactics: Set Your Trap, Then Wait

When using this strategy, one powerful move is to set limit orders near the boundaries of the broadening formation and trail your stop as the price crosses each SMA. This way, you’re letting the market come to you—like a hunter setting traps rather than chasing the prey. It’s all about patience and using the indicators wisely.

One Simple Trick That Can Change Your Trading Mindset

Here’s a mindset shift: don’t think of volatility as the enemy. With the right tools, volatility is actually your best ally. It’s like taming a dragon—once you know how to steer it, the fire stops being something to fear and starts being something you use to your advantage.

Your Next Steps

You now know how to combine a simple moving average with broadening formations to find golden trading opportunities most traders miss. Remember, trading is about making the best decisions with the information you have—and now you have some pretty powerful tools at your disposal. Go on, try it out in your demo account first and get comfortable. Once you start seeing those patterns and riding that trend, you’ll wonder why this hidden strategy isn’t talked about more often.

Oh, and one last thing—if you want to stay on top of other game-changing tactics, make sure to join the StarseedFX community. Not only will you get daily insights and live trading alerts, but you’ll also be joining a crew that knows how to use both classic and unconventional strategies to win.

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Image Credits: Cover image at the top is AI-generated