Descending Broadening Wedge

The Descending Broadening Wedge is essentially the opposite of the Ascending Broadening Wedge. The same pattern, but flipped or mirrored. Contrary to the Falling Wedge, where the price action contracts as the pattern matures, the Descending Broadening Wedge widens as the two trend lines that have formed diverge from one another.

Descending broadening wedge

The descending broadening wedge is considered to be a reversal pattern, and is bullish in nature. Though the pattern is typically a signal of reversal, continuation of the downtrend is still possible.

When present as a continuation pattern, the wedge will still slope to the downside, but the down-slope will typically be found as a pullback within an uptrend. When present as a reversal, the pattern will slope to the downside within a downtrend. Regardless of continuation or reversal, descending broadening wedges are always bullish in nature.

What to Look For

Trend Established: As with any reversal, there needs to be an established trend to reverse. The descending broadening wedge can form on any time frame, and can mark the reversal of a short, intermediate, or long term trend. The odds of a breakout to the upside are at 79%, leaving only 21% odds of a break to the downside. At times the overall trend may actually be consumed entirely by the pattern, while at other times the pattern forms after an extended decline.

Resistance Line: At least two highs are required to draw the upper resistance trend line. For the descending broadening wedge to be a valid pattern, price action should be creating lower highs.

Support Line: At least two lows are required to draw the lower support trend line. Price action should be creating lower lows in order for the pattern to be valid.

Price Action Expansion: The distance between the resistance and support lines will expand or widen as the pattern matures.

Break in Resistance Line: Confirmation of the bullish move is when the resistance line is broken to the upside, and the candle for the current time frame has closed passed the break. If you want to play it safe, wait for a break of the previous lower high. Once this resistance is broken, there may be a reaction pull to retest the new found support level (broken resistance line) as show below on USOIL 1 min chart.

USOIL

Executing the Trade

Safe Trade

Entry:
Enter long position once wedge has broken to upside, and candle has closed above resistance.
Mental/Hard Stop: The stop is placed below the support line.
Price Target: Theoretical target of the pattern.
Advantages: The target is reached 81% of the time on average.
Disadvantages: That still leaves a 19% chance you may need to turn to your indicators such as the MACD, RSI, Parabolic SAR, and moving averages.
Aggressive Trade
Entry: Enter long position at 3rd touch of support/demand line.
Mental/Hard Stop: The stop is placed above the previous low.
Price Target: Theoretical target of the pattern.
Advantages: Up exit of 81% on average. Odds are definitely in your favor.
Disadvantages: The upward exit isn’t confirmed.

Stats

Probability of upside exit = 79%
Probability of reaching price target = 81%
Touches – Price must touch each trend line twice in order for pattern to be valid.

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Descending Broadening Wedge

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