Elliott's The Wave Principle published in and of course his later treatise Nature's Law of , I often wonder what else he would have discovered had he lived longer and had access to the masses of data that is obtainable today?
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When present as a reversal, the pattern will slope to the downside within a downtrend. It is most often observed as a continuation pattern in an up-trend but is a strong reversal signal when witnessed in a down-trend.
Regardless of continuation or reversal, descending broadening wedges are always bullish in nature. What to Look For Trend Established: As with any reversal, there needs to be an established trend to reverse. The descending broadening wedge can form on any time frame, and can mark the reversal of a short, intermediate, or long term trend.
At times the overall trend may actually be consumed entirely by the pattern, while at other times the pattern forms after an extended decline. At least two highs are required to draw the upper resistance trend line.
For the descending broadening wedge to be a valid pattern, price action should be creating lower highs. At least two lows are required to draw the lower support trend line. The rising wedge usually forms over a month period and can mark an intermediate or long-term trend reversal. Sometimes the current trend is totally contained within the rising wedge; other times the pattern will form after an extended advance. It takes at least two reaction highs to form the upper resistance line, ideally three.
Each reaction high should be higher than the previous high. At least two reaction lows are required to form the lower support line. Each reaction low should be higher than the previous low. The upper resistance line and lower support line converge as the pattern matures. The advances from the reaction lows lower support line become shorter and shorter, which makes the rallies unconvincing.
This creates an upper resistance line that fails to keep pace with the slope of the lower support line and indicates a supply overhang as prices increase. Bearish confirmation of the pattern does not come until the support line is broken in a convincing fashion. It is sometimes prudent to wait for a break of the previous reaction low. Once support is broken, there can sometimes be a reaction rally to test the newfound resistance level.
This is a breakout and completes the pattern. Consider taking a long trade, and shy away from short trades. For a rising wedge, consider a short trade when the price breaks below the lower trendline. Also consider exiting any long positions. If trading a rising wedge, place a stop loss just above the most recent high within the wedge. When trading a falling wedge, place a stop loss just below the most recent swing low within the wedge.
Price Target Wedges can be significant turning points. A breakout may see the price run in the breakout direction for long periods of time.
Wedges are a trend reversal pattern. Wedges form when the waves of an asset move within a narrowing range, angled either up or down.
Ascending broadening wedges are bearish megaphone shaped patterns, 52% of which breakout downward. Read this article for more performance statistics and other details. The Rising Wedge is a bearish pattern that begins wide at the bottom and contracts as prices move higher and the trading range narrows. In .
How to trade different types of wedges. Broadening Wedges are plentiful in price charts and can provide good risk and reward trades. I want to do a little followup on a pattern that I posted yesterday on the weekly stock pick, GORO. I showed a bullish expanding falling wedge as it’s most recent consolidation pattern.
Falling Wedge (Reversal) The Falling Wedge is a bullish pattern that begins wide at the top and contracts as prices move lower. The Descending Broadening Wedge is essentially the opposite of the Ascending Broadening Wedge. The same pattern, but flipped or mirrored. Contrary to the.