We don’t advise you to trade based on a classical strategy, because you’ll experience difficulties with setting and subsequent execution of Limit order, namely: the price can trigger the Limit order and come back inside the range.ĭue to the really steep slope of the pattern’s side broken out, the price very rarely pulls back to it, but slight price move towards the side happens quite often. You can experiment with it, but most of all, you must observe the rule of SL < TP. Sometimes it’s hard work setting Stop Loss according to this strategy, since the pattern occurs at the end of the trend. Stop order (Stop Loss, SL) is set outside the pattern’s border. Set a trading target (Take Profit, TP) at the level of one of the internal tops of the descending “Wedge” – they might be points (3, 4) *“Sweet zone” is the conditional name of the favorable range for the market entry that refers to the zone from the previous extreme to the pattern’s border (it is marked in green on the chart on the right side).Įnter the market (1) when the price is in the “sweet zone” (2) Strategy of market entry in the “sweet zone” *: “Wedge” is the pattern of average complexity within which the price makes abrupt moves followed by false breakouts due to constant making of new highs at that, the steeper the slope of the pattern, the harder it is to trade with the pattern successfully.Īlternative strategy of market entry and exit points. Alternative Strategies for the “Wedge” Pattern By the way, a snapshot of the order book (2) indicates that it is the last time when the price has made a new high. This may indicate adding to positions by a major player and preparation for the price reversal. In our case, the price constantly makes a new high on one side and comes back abruptly inside the pattern’s range – thus, the impulse in this direction is not of interest to us. If a falling wedge appears during a downward shift of momentum in the market, it is considered a reversal pattern. Let’s clarify: as a rule, when the impulse is expected to make a new high, the price waits out while Stop Loss/Take Profit orders cluster on both sides of the pattern’s range. The falling wedge, also referred to as the descending wedge pattern, appears when the price of a security constantly touches lower highs and lower lows, thus contracting the range of the price movement. However, if conditions for clustering of orders are specially created for the “ Triangle”, these orders (1) are constantly triggered in case of the “Wedge”. The “Wedge” is often similar to a “Triangle” pattern having a horizontal flat side. The purpose of these manipulations is simple – knocking extra “passengers” out of the market or adding to positions by a large participant. You will be able to spot these patterns in candlestick charts easily, but we like to set up our resistance and rising support levels through our line graphs to give us a better representation.Reasons for the “Wedge” Pattern Formationīeing a reversal pattern, the “Wedge” pattern implies manipulations during its completion. In this example, you can see after a period of consolidation and the formation of the rising wedge. A descending broadening wedge forms as price moves between the upper resistance and lower support trend lines multiple times as the trading range expands during the downtrend in price. This pattern is created by two declining and diverging trend lines. Rising wedges are also known as ascending wedges due to the price action move is creating a squeeze upwards, below I’ll demonstrate a bullish and bearish ascending wedge breakout. A descending broadening wedge chart pattern is a bullish reversal pattern. With all wedge patterns note this, the price can break out on either side of the pattern – it is the breakout direction that we trade. ![]() In this article, we are going to cover the breakout moves. ![]() A descending broadening wedge is a bullish continuation formation and appears in the middle of an uptrend. Trendlines in this pattern diverge, and at the same time, they fall as the structure completes. ![]() ![]() One common strategy is to wait for a breakout above or below the trendlines and enter a position in the direction of the breakout.Īnother strategy is to enter a position upon a trend reversal, as indicated by a move above or below the trendlines. A descending broadening wedge pattern is the mirror image of the ascending broadening wedge. When trading with wedge patterns, traders can use a variety of strategies. The trendlines in a rising wedge converge at an upward angle, with the upper trendline at a shallower angle than the lower trendline.Īs the pattern forms, the trading range narrows, indicating a decrease in buying pressure.Ī breakout below the lower trendline of a rising wedge can signal a potential downtrend reversal.
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