Descending Expansion Wedge Model - Model overview and identification

A descending expansion wedge is a reversal pattern from decreasing to increasing. This pattern is made up of 2 resistance and support lines that are both descending.

A descending expansion wedge forms when price moves inside a couple sloping support line pair, on a downward path the price expands as support and resistance lines diverge. Price must touch each support/resistance line 2-3 times to be a valid pattern. The form of this model looks like a speaker hanging downwards.

In terms of pattern recognition, one more factor is needed, which is trading volume. The volume of trading as price moves in the right pattern gradually decreases from left to right, indicating a prolonged cumulative accumulation. In particular, the breakout of resistance should have a significantly higher volume than the previous volume columns. We will discuss more the method of dealing with this model in the next section.

Decreasing Expansion Wedge - How to trade

A breakout is confirmed when the price breaks above the resistance line and closes above, accompanied by increased volume. One thing to note is that on the way to cross above that resistance line, the pattern that makes higher highs and smaller high lows has more confidence because it is a sign that bullish momentum is accumulating. condenser and more durable than 1 wave rising straight upwards.

Like the example below:


Notice that on the way up the resistance line, the price does not skyrocket into a wave, but forms peak and bottom higher. That shows that the upside momentum is sustainable.

One more sign to find reliable descending wedge patterns is that the price forms a pullback - called a buildup - just below the resistance line before breaking out. The buildup shows the accumulated energy in preparation for the best possible breakout, and more importantly, a tighter stop loss can be placed - just below the buildup is fine.

It is advisable to avoid trading patterns with breakouts without buildup: because 1, the break does not generate enough energy and will wear out very soon, and 2, there is no proper stop-loss position.

Buyable when price hits the support line for the third time and starts to move up. Target take profit at highest peak hits the first resistance line (Buy at B take profit at A)

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