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Wedgeformation

Broadening Wedges - Advanced AnalysisIn our previous post in this series about chart patterns we described the characteristics, rules, and causes of triangle patterns (if you haven't seen it, see the related idea below). In this post, we perform an advanced analysis of broadening wedges patterns. We provide a description of each pattern and its implications. We also review the literature in order to find their deterministic cause. 1. Broadening Wedges Broadening wedges are characterized by price variations laying within one support and resistance, both having the same direction and broadening over time. As such the apex of the support/resistance in a broadening wedge is located to the left. Broadening wedges must not be confused with other broadening formations. While they all have a broadening characteristic they can have different identification rules Broadening wedges are classified depending on the direction of the support/resistance. 1.1 Ascending Ascending broadening wedges mostly occur during uptrends with rising local maxima (higher highs) forming an upward sloping resistance and raising local minimas (higher lows) forming an upward slopping support. The slope of both the support & the resistance should be significantly different from 0. Bulkowski suggests the price needs to test the support and resistance three times each. Additionally, the resistance should be steeper than the support. Volume tends to increase during the formation of such pattern. Ascending broadening wedges have a bearish bias with breakouts mostly occurring downward. Downward breakouts are often followed by a decrease in price. Example of an ascending broadening wedge followed by a downward breakout on SOLUSDT 4h. 1.2 Descending Descending broadening wedges mostly occur during downtrends with declining local maxima (lower highs) forming a downward sloping resistance and declining local minimas (lower lows) forming a downward slopping support. The slope of both the support & the resistance should be significantly different from 0. Similarly to ascending broadening wedges, Bulkowski suggests the price needs to test the support and resistance three times each. Additionally, the support should be steeper than the resistance. Volume tends to increase during the formation of such pattern. Descending broadening wedges have a bullish bias with breakouts mostly occurring upward. Upward breakouts are often followed by an increase in price. Example of an ascending broadening wedge followed by a downward breakout on AVAX 1h. 2. Partial Rises/Declines Partial rises/declines are phenomena described by Bulkowski in broadening formations and are described as being common. Partial rises/declines often indicate the direction of a breakout. Partial rises commonly occur in broadening ascending wedges, price bounces off the support, moves towards the resistance without reaching it, and go back to the support. We can expect a potential downward breakout after that. Note that a partial rise always starts from the test of the support. Partial declines commonly occur in broadening descending wedges. The price bounces off the resistance, moves towards the support without reaching it, and then goes back to the resistance where we can expect a potential breakout upwards. Note that a partial decline always starts from the test of the resistance. Partial rises and declines can offer a better price to buy/sell instead of waiting for a breakout. 3. Measure Rule The measure rule for broadening wedges allows us to determine the position of a take-profit/stop-loss. For a broadening ascending wedge the measure rule would place our take profit at the lowest low inside the formation. Selling directly after a partial rise would allow for higher profits. For a broadening descending wedge the measure rule would place our take profit at the highest high inside the formation. Selling directly after a partial decline would allow for higher profits. Certain analysts close trades caused by partial rises/declines when the price reaches the support/resistance of the wedge, opening a new position in the case of a breakout while using the metric rule for setting their take profit. 4. Causes Of Broadening Wedges Bulkowski offers a description of the causes of broadening wedges in the market in terms of the market participant's behavior. The cause of an ascending broadening wedge is a surge from an initial buying impulse, driving the price higher. Momentum traders follow the initial impulse further pushing prices up. Contrarian traders judge the price to be trading above its intrinsic value, selling and thus creating a decline in prices. However, before the decline reaches the previously established low, certain market participants buy again. These participants can be composed of initial buyers, accumulating positions, or late traders seeing the potential to buy at a better price. This allows the creation of a new impulse, with only a divergence left. This scenario eventually repeats itself with increased volume, causing impulses and retracements of higher magnitude reinforcing a positive feedback loop until the price is judged overbought even by initial buyers. A broadening falling wedge follows the same scenario structure but with sellers instead of buyers. 5. Other Observations The amplitude of the cyclical variations within a broadening wedge increases over time, thus potentially highlighting volatility clusters in higher time-frames. Another interesting observation that can be made is that prices within a broadening wedge are subject to heteroscedasticity (variability is not constant, it increases inside a broadening wedge), while prices inside a channel are homoscedastic (variability remains constant). This concept is inherent to regression analysis. 6. Conclusion In this post we described broadening wedge patterns in depth. We have highlighted partial rises/declines as well as how the measure rule applies to such patterns. We then focused on showing how market participants act during the formation of broadening wedges. Note that unlike triangles patterns we did not find a significant amount of studies mentioning such patterns, nor any agent models developed to describe their occurrence. 7. References (1) Bulkowski, T. N. (2021). Encyclopedia of chart patterns. John Wiley & Sons.
Editors' picks
LEducation
by LuxAlgo
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Upcoming short ideas - 47k rejectionAs previously stated 47k is a big psychological level and also adds confluence to a massive wedge that's been in play since the 5th with the upper resistance starting from the 12th of July. This is another tipping scale moment for BTC where either direction will be big. Mapped out are three possible short scenarios stemming from different areas however they have different risk tolerances. The third short, furthest from now, is the highest r/r however if this wedge plays out as it should then we will see it. The first short is a lower r/r however this takes into account a trend line stemming from the 21st of July and is where I will place TP providing my trailing SL won't get triggered. TL:DR - Bearish wedge looks to play out around 47k , a breakout upwards of this wedge continuing with the upwards channel present is unlikely at this point.
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by ollie_oz
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VITEUSDT is creating a falling wedge 🦐VITEUSDT is creating a falling wedge on the daily timeframe and now the price is testing the daily resistance. IF the price will have a breakout from the wedge and retest the current resistance as new support, According to Plancton's strategy (check our Academy), we can set a nice order ––––– Follow the Shrimp 🦐 Keep in mind. 🟣 Purple structure -> Monthly structure. 🔴 Red structure -> Weekly structure. 🔵 Blue structure -> Daily structure. 🟡 Yellow structure -> 4h structure. ⚫️ Black structure -> <4h structure. Here is the Plancton0618 technical analysis, please comment below if you have any question. The ENTRY in the market will be taken only if the condition of the Plancton0618 strategy will trigger.
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by InkyGrip
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I think I'm crazy part IIDid a detailed analysis on the hourly chart of some pretty crazy similarities exactly almost a year ago down to similar price action only 1-5 days apart. Goes to show if you don't have a larger perspective anyone can be caught up in the clouds and not see the F****** world below. Zoomed out on the daily and what a view. We have similar impulse waves that in the beginning are about month apart, then end of wave 5 they are both 2 days apart. Time frame for first wedge puts the beginning to break down of wedge at 200 days. Time frame for 2021 at 199 days is Friday, March 26. We have similar movement in RSI in relation to where we are now and other highlighted circle in 2020. Parallel dotted trend lines in RSI shows they are exactly same levels. That's all folks, www.bloomberg.com
CME_MINI:ES1!
by moonman777
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The Descending Broadening WedgeA descending broadening wedge is bullish chart pattern (said to be a reversal pattern). It is formed by two diverging bullish lines. A descending broadening wedge is confirmed/valid if it has good oscillation between the two upward lines . The upper line is the resistance line; the lower line is the support line. Each of these lines must have been touched at least twice to validate the pattern. NB: a line is said to be "valid" if the price line touches the support or resistance at least 3 times. 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). A descending broadening wedge does not mark the exhaustion of the selling current, but the buyers’ ambition to take control. 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. The sellers manage to make the price rebound on the resistance line but lose control after the formation of a new lowest point. The highest point reached during the first correction on the descending broadening wedge’s resistance line forms the resistance. A second wave of decline then occurs of more magnitude, signalling the sellers' loss of control after a new lowest point. A third wave forms afterwards but the sellers lose control again after the formation of new lowest points. During the formation of a descending broadening wedge , volumes do not behave in any particular way but they increase strongly when the support line breaks. source:Centralcharts In 80% of cases, the exit is bullish. In 75% of cases, a descending broadening wedge is a reversal pattern. In 60% of cases, a descending broadening wedge’s price objective is achieved when the resistance line is broken. In 21% of cases, the price makes a pullback in support on the descending broadening wedge’s resistance line. This type of pattern appears during the correction in a bullish movement, it is a bullish continuation pattern. Resumption of the bullish movement after correction. The break in the resistance line definitively validates the pattern. The price objective is given by plotting the wedge’s maximum height onto the breaking point NB: pullbacks are harmful to the pattern’s performance. Statistics of the descending broadening wedge after a bullish movement - In 79% of cases, the exit is bullish. - In 23% of cases, a descending broadening wedge occurs in a consolidation movement. - In 81% of cases, the pattern's price objective is achieved when the resistance line is broken. - In 40% of cases, the price makes a pullback in support on the descending broadening wedge’s resistance line.
by TayFx
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The Ascending Broadening WedgeAn ascending broadening wedge is a bearish chart pattern (said to be a reversal pattern). It is formed by two diverging bullish lines. An ascending broadening wedge is confirmed/valid if it has good oscillation between the two upward lines. The upper line is the resistance line; the lower line is the support line. Each of these lines must have been touched at least twice to validate the pattern. NB: a line is said to be "valid" if the price line touches the support or resistance at least 3 times. This implies that the ascending 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). An ascending broadening wedge does not mark the exhaustion of the buying current, but the sellers’ ambition to take control. The divergence of the two lines in the same direction (increase in price magnitude) informs us that the price continues to increase with movements that are increasingly high in magnitude. The buyers manage to make the price rebound on the support line but lose control after the formation of a new highest point. The lowest point reached during the first correction on the ascending broadening wedge’s support line forms the support. A second wave of increase then occurs with more magnitude, signalling the loss of buyers' control after a new highest point. A third wave is formed afterwards but buyers lose control again after the formation of new highest points. During the formation of an ascending broadening wedge , volumes do not behave in any particular way but they increase strongly when the support line breaks. This type of pattern appears during the correction in a bearish movement, it is a bearish continuation pattern. Resumption of the bearish movement after correction. The break in the support line definitively validates the pattern. The price objective is given by plotting the wedge’s maximum height onto the breaking point NB: pullbacks are harmful to the pattern’s performance. Statistics of the ascending broadening wedge after a trough - In 79% of cases, the exit is bearish. - In 23% of cases, an ascending broadening wedge occurs in a consolidation movement. - In 81% of cases, the pattern's price objective is achieved when the support line is broken. - In 40% of cases, the price makes a pullback in resistance on the ascending broadening wedge’s support line.
by TayFx