![]() FormationĪ broadening wedge formation is made up of three sections: This will help you get in the market at the right time and avoid getting caught in bull and bear traps. If you see a widening formation on a chart, I would recommend you wait for a confirmed price action before making your trading decisions. Volume levels will then rise significantly upon a breakout (either upward or downward). If the trading volume increases along with the price, this indicates that the momentum is still strong and the previous price trend is likely to continue. This is a warning sign that the buyers are losing interest and that the trend is going to reverse. The formation is only considered valid if the volume levels are decreasing as the price moves higher. When trading this pattern, it is also important to keep an eye on the volume levels. However, you will need to stay flexible until the formation fully develops. The great thing about the widening wedge pattern is that it can be both bullish and bearish, regardless of the time frame. ![]() Is Broadening Wedge Pattern Bullish or Bearish? If you are a more experienced trader, it can help you time your entry and exit points. If you are just starting out, you can use this pattern to help you identify potential reversal trading opportunities. No matter what your level of experience, the expanding wedge can be a valuable tool in your trading arsenal. If you're bearish, you can wait for a downward breakout to occur before taking your short position. If you are bullish on the security, you can go long when there's an upward breakout and the price closes above the upper trendline. However, breakouts can occur in either direction, so you need to be prepared for both scenarios. The trend is usually sideways within the expanding wedge pattern. The formation is considered complete when the price breaks outside the megaphone shape. It is created by drawing two diverging trend lines that connect a series of price peaks and troughs. 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.The broadening wedge is a bilateral chart pattern that you can use to spot potential breakouts (if the market is trending) and short-term trend reversals. 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. 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. 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. Reasons for the “Wedge” Pattern Formationīeing a reversal pattern, the “Wedge” pattern implies manipulations during its completion. ![]()
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