Broadening Wedge Pattern Updated 2023

Usually, a rising wedge pattern is bearish, indicating that a stock that has been on the rise is on the verge of having a breakout reversal, and therefore likely to slide. A wedge pattern can be either a continuation or a reversal. Which one it is will depend on the breakout direction of the wedge.

If you trade breakouts occurring with solid bullish momentum, you can target the broadening wedge height several times. You can also set profit targets at major resistance levels, such as a pivot point or a previous high. I prefer to open long positions only in strongly bullish markets. Now, I will show you how to correctly trade the falling broadening wedge breakouts. I will present a step-by-step guide that includes everything you need to trade falling broadening wedge this pattern efficiently. I will show you how to identify and confirm buying signals, how to enhance your success rate with a filter, and where to set your target and stop-loss.

Broadening Wedge Pattern – The Expert’s Guide (Updated

The falling wedge is a poor performer as far as bullish chart patterns go. The break even failure rate is high and the average rise is low. The only variation that works well is a downward breakout in a bear market and the performance rank for that is in the bottom half of the list. As the descending channel and the falling wedge, the falling broadening is a descending figure indicating a bearish bias. Opening a long entry in a bear market would be too risky. That is why you have to check some details before entering a trade.

The falling broadening wedge can be bullish, bearish or neutral, depending on the direction of the breakout. This is an example of a falling wedge pattern on a chart of $GLD using TrendSpider. The lower trendline indicates a major level of support that extends into the future. Note that the falling wedge didn’t quite reach the lower trendline. Before the falling wedge formation, there was a rising wedge.

Falling wedge patterns are bigger overall patterns that form a big bearish move to the downside. They form by connecting two to three points on support and resistance levels. The price becomes bullish once it breaks out of the wedge. Look for a retest of the wedge after the breakout; if it holds, you’ll have bullish confirmation.

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• These ascending broadening wedge chart patterns, like ascending broadening wedges, arise in uptrends indicating trend continuation.
• If price starts reversing back to the lower trendline then sell.
• The statistics demonstrate that selected wedge varieties offer a quantitative trading edge while others remain artistic chart shapes with low accuracy.
• Often the trendline touches are one to the top and one to the bottom, one to the top and one to the bottom.
• These are bullish reversal patterns found on daily charts and intraday.
• A falling channel creates a series of lower highs and lower lows.

This often happens on charts where the patterns will reverse when the trends change. Trend lines are used not only to form patterns but also to serve as support and resistance. To confirm a bullish bias, look for the price to break the resistance trend line with a convincing breakout. Once resistance is broken, the previous level becomes a form of support.

Descending Broadening Patterns

It is identified by two diverging trendlines that connect a series of higher highs and lower lows, forming a shape similar to a widening cone or megaphone on the price chart. By combining this pattern with other technical tools and proper risk management, traders can enhance their overall trading success. Be cautious during volatile or uncertain times, as wedge patterns are more prone to false signals.

Related Patterns to Falling Wedge Patterns

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That is why you must ensure the falling broadening wedge appears in a long-term uptrend. A falling broadening wedge, or descending broadening wedge, forms during a downtrend. It comprises two broadening trendlines where the price makes lower lows and lower highs. It looks like a megaphone tilted downwards, where the price action becomes more volatile with each swing. Traders using technical analysis rely on chart patterns to help make trading decisions, particularly to help decide on entry and exit points. There are many patterns that technical traders employ, the wedge pattern being one of them.

The particularity of the broadening wedge is that this figure corroborates the increase in volatility. That is why placing the stop-loss on a broadening wedge is more challenging than for other figures, such as descending channels. Volume is one of the best indicators for confirming a breakout. Verify that the breakup is preceded and supported by buyer volumes. That reveals that most traders agreed with the buying signal. Waiting for a clear breakout is essential to avoid false signals.

• Right-Angled Broadening Wedges come in two varieties, ascending and descending.
• Descending broadening wedge is a bullish trend reversal chart pattern that consists of an expanding wave in the downward trend.
• This long and loose descending broadening wedge is typical for this chart pattern type.
• At 4, it slides below the bottom of the chart pattern and likely hits a stop placed there.

It starts as a bearish downward trend but creates a bullish reversal once the price breaks out of the base of the wedge. The support and resistance lines form cone shapes as the pattern matures. The shallower the lows, the greater the decrease in selling pressure. Use proper risk management techniques when trading a falling wedge pattern. When trading this pattern, it is essential to have confirmation of the breakout, so the trader does not get caught in a trap. These patterns are formed by support and resistance, and the price will return to retest those levels to see if they hold.

The name might throw you off because it sounds bearish, but it is not. After the two trendlines have been formed the pattern can be identified. When price rises off the lower trendline, and doesn’t reach the upper trendline before falling back to the lower trendline.

In this post, I will demonstrate how to utilize falling broadening to capitalize on volatility. You will learn to recognize this pattern, detect the signals, place the target, and secure your position. Your target for profit is the height of the wedge at breakout. Watch out for nearby support and resistance, make this your first target. The Descending Right-Angled Broadening Wedges (DRABW) have a descending trendline below the horizontal trend line with price action in between. When price breaks the upper trendline and closes above it this signals a breakout.

Confirm the signal with volumes

Swing traders can trade the pattern from top to bottom and from bottom to top. The Descending Broadening Wedge is similar to the Ascending Broadening Wedge pattern and the descending variety of wedge broadens downwards. The trendlines should point in opposite directions, the width between them broadening. The upper trendline pointing upwards, the lower trendline pointing downwards.

Stocks with high volatility or during earnings seasons may frequently form this pattern. Recognizing the psychological drivers can help traders anticipate potential breakouts and avoid premature entries. Patience and confirmation from other indicators are key. A breakout above the upper line may suggest a bullish move, while a breakdown below the lower line could indicate a bearish reversal. Traders often look at volume and breakouts to confirm their entry and exit points.