![]() ![]() The descending broadening wedge is a bullish reversal pattern that forms during a downtrend. There are two types of broadening wedge patterns: ascending broadening wedges and descending broadening wedges. This results in two trendlines, one for resistance and one for support, which diverge over time. The broadening wedge pattern is a technical chart pattern that occurs in financial markets when a security’s price movements become more volatile during a specific period. By closely monitoring the price movements within this formation, investors can gain valuable insights about potential breakouts and upcoming opportunities in the market. The pattern is considered valid and confirmed if there is sufficient oscillation between these boundaries.Īs the descending broadening wedge pattern signals potential market shifts, mastering a proper understanding of this pattern can be critical for successful trading decisions. The resistance line represents the upper boundary of the pattern, while the support line serves as the lower boundary. Traders and investors pay close attention to this pattern because it is an indicator of a potential trend reversal – from a downtrend to an uptrend.Įffectively identifying the descending broadening wedge requires a keen eye for two key diverging trendlines – the resistance line and the support line. This formation occurs when the price of an asset demonstrates a series of lower lows and lower highs within a range that expands over time. ![]() The amplitude of the cyclical variations within a broadening wedge increases over time, thus potentially highlighting volatility clusters in higher time-frames.The descending broadening wedge pattern is a notable chart pattern in the world of technical analysis, often seen as a bullish reversal pattern. 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.Ī broadening falling wedge follows the same scenario structure but with sellers instead of buyers. This allows the creation of a new impulse, with only a divergence left. ![]() These participants can be composed of initial buyers, accumulating positions, or late traders seeing the potential to buy at a better price. However, before the decline reaches the previously established low, certain market participants buy again. Momentum traders follow the initial impulse further pushing prices up.Ĭontrarian traders judge the price to be trading above its intrinsic value, selling and thus creating a decline in prices. The cause of an ascending broadening wedge is a surge from an initial buying impulse, driving the price higher. Causes Of Broadening Wedgesīulkowski offers a description of the causes of broadening wedges in the market in terms of the market participant's behavior. Selling directly after a partial decline would allow for higher profits.Ĭertain 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. Selling directly after a partial rise would allow for higher profits.įor a broadening descending wedge the measure rule would place our take profit at the highest high inside the formation. For a broadening ascending wedge the measure rule would place our take profit at the lowest low inside the formation. ![]()
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