#Falling wedge price target series

This is when the price breaks out of the wedge in one direction, only to reverse and move back inside the wedge. However, beware of bull and bear traps (aka 'fakeouts' or 'head fakes')Īscending and descending broadening patterns are difficult to trade because they are prone to fakeouts. Your profit target points can be found by taking the height of the pattern and adding it to the entry price. The rule of thumb is to wait for the price to break the trendlines before taking a position. The next step is to identify an entry point for your trade. Once you have identified this series, you will then need to look for the divergence between the highs and lows.

#Falling wedge price target series

This can be seen on a price chart as a series of peaks and troughs that are all moving in the same direction. The first step in identifying this pattern is to look for a series of highs and lows. Third, the formation can take a long time to develop, which can lead to frustration for traders who are trying to trade it. Second, it is difficult to spot on a chart. Trading Strategyīroadening wedges are difficult to trade for a number of reasons.įirst, the pattern is prone to false breakouts. The target for this trade could be the same as the height of the wedge.Ī long breakout candlestick shows that bearish sentiment was gaining momentum, and a strong downtrend was likely to follow.Įven if this is an ideal setup for a short position, don't forget to place a stop loss to limit your risk in case the market goes against you. We would enter the market when the broadening wedge breakout occurred. Now let's dive into some variations of the broadening wedges. This pattern can take a long time to form, so patience is your key to success. The break-out from the wedge formation is often accompanied by an increase in trading volume, which can confirm the strength of the move.

This shift typically occurs after a period of consolidation or range-bound trading. The extending pattern is created when there is a shift in the balance of power from the bears to the bulls.

The breakout phase: This is when the wedge breaks downward or upward.The buildup phase: This is where price begins to move sideways within the wedge.The narrowing phase: This is where the upper (resistance line) and lower (support line) lines begin to diverge.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. 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.