Falling wedge investopedia how to#

The descending broadening wedge pattern can extend for long periods on rising unpredictability. The stop loss should have been placed below the back of the wedge By taking into account, the height of the back of the wedge and by extending that distance up from the trend line breakout, the take profit target is calculated. The entry (buy order) is placed when the price breaks above the top side of the wedge, or when the price finds support at the upper trend line, the entry (buy order) is placed. The descending broadening wedge pattern indicates a likely buying opportunity after a downtrend or an existing uptrend.ĭescending broadening wedge has the appearance of a bearish megaphone pattern. No: 4 Distance from entry (buy order) to Target Point-3 (this is the same height as the back of the wedge number 3) The profit target is calculated by taking the height of the back of the wedge and by extending that distance up from the trend line breakout. No 2: This is the area where price has broken the upper trend line of the wedgeĢ -Stop loss below the bottom of the broadening wedge (The chart below portrays that the stop loss should be placed below the bottom side of the broadening wedge.)

Falling wedge investopedia how to#

(broken resistance line) How to Trade the descending Broadening Wedge?Įnter the market by placing a buy order (long entry) on the break of the top side of the wedge.Īvoid false breakouts by waiting for the candle to close above the top trend line and enter. Once this resistance is broken down, there will be a reaction pull to reset the new-found support level. To make a safe move, wait for a break from the previous lower high. Substantiation of the bullish move is when the resistance line is broken to the upside, and the candle for the current time frame has closed past the break.

The distance connecting the resistance and support lines will expand or widen as the pattern matures. Price action should create lower lows for the pattern to be valid. Support Line:Ī minimum of two lows are required to draw the lower support trend line. To make the descending broadening wedge a valid pattern, price action should create lower highs. How to Spot Descending Broadening Wedge?Ī minimum of two highs is necessary to draw the upper resistance trend line. The overall trend may actually be consumed entirely by the pattern, and on other occasions, the pattern forms after an extended decline. The odds of a breakout to the upside are at 80%, leaving only 20% odds of a break to the downside. The descending broadening wedge can form on any time frame and mark a short, intermediate, or long-term trend reversal. There needs to be an established trend to reverse like any other reversals. Despite continuation or reversal, descending broadening wedges are always bullish. The pattern will slope to the downside within a downtrend on a reversal. On a continuation, the wedge will still slope to the downside, but the down-slope will characteristically be found as a pullback within an uptrend. Although the pattern is typically a reversal signal, a continuation of the downtrend is still possible. The descending broadening wedge is measured to be a reversal pattern and is bullish. Divergent to the Falling Wedge, where the price action contracts as the pattern mature, the Descending Broadening Wedge widens as the two trend lines that have formed diverge from one another.

It is generally formed during a downtrend. The Descending Broadening Wedge is the opposite of the Ascending Broadening Wedge.