![]() Old trend - The old trend is the trend that the instrument price is in as the new pattern begins to form.Like the majority of price patterns, there are four key elements that are needed to form the pattern: These patterns may repeat and occur naturally due to price action, and when they can be identified by market analysts and traders, they can provide an edge to trading strategies and help them beat the market. How to use those patterns in your tradingĪ chart pattern (or price pattern) is an identifiable movement in the price on a chart that uses a series of curves or trendlines.Keep reading to learn how to predict price trend continuation using common reversal and continuation patterns. Therefore, it can be beneficial to use additional tools to filter them.īut before you dive into the world of continuation and reversal patterns, it's important to be well acquainted with some relevant trading knowledge, such as how to read candlestick patterns and what is the difference between bullish and bearish markets. These pattern types are easily spotted by traders but sometimes they can struggle to decide whether the signal they’re seeing is valid or not. An important part of any trader's technical strategy is the use of technical indicators. Its opposite is an ascending broadening wedge.Technical analysis is a broad term we use when we’re examining market data to try and predict future price trends. In 40% of cases, the price makes a pullback in support on the descending broadening wedge’s resistance line.įor your information: A descending broadening wedge is a reversal chart pattern. In 81% of cases, the pattern's price objective is achieved when the resistance line is broken. In 23% of cases, a descending broadening wedge occurs in a consolidation movement. NB: pullbacks are harmful to the pattern’s performance. The price objective is given by plotting the wedge’s maximum height onto the breaking point Resumption of the bullish movement after correction. ![]() This type of pattern appears during the correction in a bullish movement, it is a bullish continuation pattern. In 21% of cases, the price makes a pullback in support on the descending broadening wedge’s resistance line.ĬASE 2: formation of a descending broadening wedge after a peak In 60% of cases, a descending broadening wedge’s price objective is achieved when the resistance line is broken. In 75% of cases, a descending broadening wedge is a reversal pattern. Statistics of the descending broadening wedge after a bullish movement NB: often, the steeper the descending broadening wedge’s trend lines, the faster the price objective is reached. The price objective is determined by the highest point at which the descending broadening wedge was formed. The break in the resistance line definitively validates the pattern. This type of pattern appears on the troughs, it is a bullish reversal pattern. A third wave forms afterwards but the sellers lose control again after the formation of new lowest points.ĭuring the formation of a descending broadening wedge, volumes do not behave in any particular way but they increase strongly when the support line breaks.ĬASE 1: formation of a descending broadening wedge after a trough A second wave of decline then occurs of more magnitude, signalling the sellers' loss of control after a new lowest point. The highest point reached during the first correction on the descending broadening wedge’s resistance line forms the resistance. The sellers manage to make the price rebound on the resistance line but lose control after the formation of a new lowest point. The divergence of the two lines in the same direction (increase in price magnitude) informs us that the price continues to fall with movements that are increasingly low in magnitude. This implies that the descending broadening wedge pattern is considered valid if the price touches the support line at least 3 times and the resistance line twice (or the support line at least twice and the resistance line 3 times).Ī descending broadening wedge does not mark the exhaustion of the selling current, but the buyers’ ambition to take control. NB: a line is said to be "valid" if the price line touches the support or resistance at least 3 times. The upper line is the resistance line the lower line is the support line.Įach of these lines must have been touched at least twice to validate the pattern. It is formed by two diverging bullish lines.Ī descending broadening wedge is confirmed/valid if it has good oscillation between the two upward lines. A descending broadening wedge is bullish chart pattern (said to be a reversal pattern).
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