Broadening Wedges are one of a series of Chart Patterns in Trading:
There are 6 Broadening Wedge patterns that we can separately identify on our charts and each provide a good risk and reward potential trade setup when carefully selected and used alongside other components to a successful trading strategy.
- Ascending Broadening Wedge
- Broadening Wedge Tops
- Broadening Wedge Bottoms
- Descending Broadening Wedge
- Ascending Right-Angled Broadening Formations
- Descending Right-Angled Broadening Formations
1 – The Ascending Broadening Wedge
The Ascending Broadening Wedge is one of six Broadening Wedge patterns to be found in price charts.
Broadening Wedges are plentiful in price charts and can provide good risk and reward trades. The broadening aspect of them suggests increasing price volatility and increasing volume this spells out opportunity.
Identifying Ascending Broadening Wedges
Price makes a low and rises. We then track price as it rises away from the low. We are looking for higher highs and higher lows in a tight range.
The higher highs make a rising trend line, this forms the upper boundary to our pattern. The higher lows make a lower rising trend line, this forms the lower boundary to our pattern.
With the Ascending Broadening Wedge formation we are looking for three peaks and three valleys with tops and bottoms forming the trendlines. Three touches to each trendline.
Both the upper and lower trendlines should rise. The upper trendline should rise more steeply than the lower trendline thus forming the broadening wedge.
Tall and wide patterns work better than short and narrow patterns.
Trading Ascending Broadening Wedges
Ascending Broadening Wedges tend to breakout in the direction of the previous price trend and so act as continuations of this move.
There are a few ways to trade these patterns.
Once we have established the two trendlines with the three price touches on either side we can trade within the patterns themselves, taking swing trades from top to bottom and bottom to top.
For example, price makes the third valley and touches the provisional trendline (made by the first two valleys), confirming the pattern. We can then trade price up to the upper trendline. Place a tight stop below the lower trend line.
When price reaches the upper trendline again this completes the swing trade.
We can also trade upward breakouts. Following the swing up from the lower to the upper trendline should price close above the third touch to the upper trendline then this provides a confirmation entry point.
The target is the full height of the pattern, from the lowest low to the highest high forming the trendlines. Watch out for price reversing at the upper trendline on the fourth touch.