[Trading Using Wedge Pattern] - Crypto Academy / S5W5 - Homework Post for @sachin08
Hi everyone. This is @sherazsultan. I welcome you all to 5th week. I am highly glad to learn something new in this week too. This lecture was given by professor @sachin08 in which he taught us about the "Trading Wedge pattern". This is my homework post.
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Question 1. Explain Wedge Pattern in your own word.
In the crypto academy, we have to analyze the market before taking any decision. The price of the assets in the crypto market keep changing and thus without analysis, we may face lose. There are a lot of indicators and pattern to predict where the market is going to move next. These pattern helps the traders to predict the future of the market.
The Trading Wedge Pattern is one among them. This pattern is highly useful to predict the future of the asset's price. This pattern is named after its formation on the chart. The pattern has a triangular shape on the chart. The trendlines on the price chart converge to draw the wedge pattern. The base of the pattern is very wide. Then with passage of the time, the trendline converge at the end of their movement.
The end show that the trend has been end and now market is going to move in opposite direction. This indicate the trend reversal. One trendlines is drawn above the price and other trend line is drawn below the price. The upper trendline act as resistance level and lower trendline act as the support level.
The two trend lines start with large opening. Then with the period of time, these lines come close to each other and at the end, the meet with each other and thus the wedge pattern form.
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This pattern is form only in the trending markets. The trend can be bullish or bearish. When the price is moving in a clear direction, the wedge pattern can be drawn there. If the price is moving in raging zone, the wedge pattern cannot be form there. Because of two trend in the market, we have are two type of the wedge pattern
- Rising wedge pattern
- Falling wedge pattern
In the rising pattern, the price move in the upward direction. When the trendlines meet with each other at the end, the breakout occur and the price is expected to move in opposite direction i.e downward direction. Similarly, in the falling wedge pattern, the price move in downward direction and when the breakout occur, the price is expected to move in upward direction.
The wedge pattern is use to indicate the pause in the movement of the price of an asset on the chart. The price of the asset on the wedge pattern touch the resistance level and support level unless and until a breakout occur. The trend lines meet to the end. The price start moving in other direction after occurrence of breakout on the chart. The formation of the wedge pattern on the chart show the trend reversal or trend continuation. When the wedge pattern is form at the end of the trend, it show the trend reversal. The price is expected to move in opposite direction. But when the wedge pattern is formed in the mid of a trend, either the bullish or bearish, the trend s expected to continue in the same direction.
This pattern show the pause in the market trend, when the breakout occur and the price is expected to move in opposite direction, the traders are supposed to place the buy or sell orders.
Question 2. Explain both types of Wedges and How to identify them in detail. (Screenshots required)
The wedge pattern is form in the trending market and not in the ranging markets. The market has basically two trends and thus we have two type of the wedge patterns.
Falling Wedge Pattern
When the price of the asset start moving downward because of high selling pressure and low buying pressure, some lower lows and lower highs are formed on the price chart where each lower low is more lower than previous low. The falling wedge pattern is formed in such downtrending markets. The falling wedge pattern is also known as the bullish wedge pattern because at the end of the falling wedge pattern, an uptrend is expected in the market.
When the falling wedge pattern form at the end of the trend, it signifies the end of trend and the trend is expected to reverse. When the falling wedge pattern form in the middle of the bullish trend, it is expected that the trend will continue the movement in same direction after breakout.
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In falling wedge pattern ,the trendlines stared from the top and continue to move in downward direction. The big start is above, the trendlines continue to converge and come close to each other. At bottom they meet with each other, the breakout occur there.
the price of the asset is moving in downward direction. When the breakout occur, the uptrend is expected in the market. There are two trend lines use to draw the falling wedge pattern, the lower trend line which will act as support level and upper trend line which will act as the resistance level. The falling wedge pattern has a large opening but then with the passage of the time period, these lines come close to each other.
Then a point come when these lines meet with each other and volume got decrease to great extent at this point. This is known as the breakout point when the downtrend is expected to reverse into the uptrend.
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The above is the chart where we can see that the price was trending downward. There was clear bearish trend where the price was falling while forming the lower low and lower high. The two trend lines were drawn to form the wedge pattern. The price keep touching the upper and lower trend line and come close to each other. The price need to touch at least 5 time to upper and lower trend line to confirm the wedge pattern. Then at point A, the lines met with each other and breakout occur. The up trend is expected after this breakout. We can see that the price started rising upward after the meetup of the trend lines.
Some time, the falling wedge pattern form in the bullish trend which signifies the continuation of the trend.
Identification of Falling Wedge pattern
- Market must be moving downward direction
- The two trend lines are drawn, one upper trend line which is drawn on the upper side of the price pattern and one lower trend line which is drawn on the lower side of the price pattern.
- These trend lines need to touch these trendlines for at least 5 times.
- When the lines come close to each other, the volume should be decrease. This is also helpful for the traders
- When lines meet with each other, breakout occur. The price is expected to move in upward direction after the breakout occurance.
Rising Wedge Pattern
When the price of the asset start moving upward because of high buying pressure and low selling pressure, some higher high and higher lows are formed on the price chart where each high is higher than previous high. The rising wedge pattern is formed in such uptrending markets. The rising wedge pattern is also known as the bearish version of wedge pattern because at the end of the rising wedge pattern, an downtrend is expected in the market.
When the rising wedge pattern form at the end of the trend, it signifies the end of trend and the trend is expected to reverse. When the rising wedge pattern form in the middle of the bearish trend, it is expected that the trend will continue the movement in same direction after breakout
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In the rising wedge pattern, the price of the asset is moving in upward direction. When the breakout occur, the downtrend is expected in the market. There are two trend lines use to draw the rising wedge pattern, the lower trend line which will act as support level and upper trend line which will act as the resistance level.
In the falling wedge pattern, the trendlines start from below and move upward. The big start is at bottom, the trendlines continue to come close and on the top, the lines met with each other.
The rising wedge pattern has a large opening but then with the passage of the time period, these lines come close to each other. Then a point come when these lines meet with each other and volume got decrease to great extent at this point. This is known as the breakout point when the uptrend is expected to reverse into the downtrend
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The above is the chart where we can see that the price was trending upward. There was clear Bullish trend where the price was rising while forming the higher high and higher low. The two trend lines were drawn to form the wedge pattern . The price keep touching the upper and lower trend line and come close to each other. The price need to touch at least 5 time to upper and lower trend line to confirm the wedge pattern. Then at point A, the lines met with each other and breakout occur. The down trend is expected after this breakout. We can see that the price started falling downward after the meetup of the trend lines
Sometime, the rising wedge form in the bearish trend which signifies the continuation of the trend.
Identification of Rising Wedge pattern
- Market must be moving upward direction. There must be a pause in the market trend to draw the wedge pattern.
- The two trend lines are drawn, one upper trend line which is drawn on the upper side of the price pattern and one lower trend line which is drawn on the lower side of the price pattern.
- These trend lines need to touch these trendlines for at least 5 times.
- When the lines come close to each other, the volume should be decrease.
- When lines meet with each other, breakout occur. The price is expected to move in downward direction after the breakout occurance. The breakout can either be heavy or low
Question 3. Do the breakout of these Wedge Patterns produce False Signals sometimes? If yes, then Explain how to filter out these False signals.
No indicator or pattern is 100% accurate. Same happen with the wedge pattern. The wedge pattern some time produce the false signals because of which the traders may lose their assets. The breakout of the wedge pattern sometime produce the false signals . To filter out the false signals, we can use the indicators.
There are a lot of indicators in the market which we can use to filter out the false signals of the wedge pattern. .png)
In the above image we can see that the price was falling downward. The two trend lines were drawn which touch the price for multiple times and thus the wedge pattern was drawn. The lines keep coming close to each other and thus a point come when the lines met and breakout occur. The price is expected to rise up. The traders find it a good spot to enter into the market. But instead of rising upward after the breakout, the again started decreasing and thus the false signals were produce by the wedge pattern which are highly harmful for the traders.
To filter out the false signals we can use the indicators with the wedge pattern. We have use the Parabolic SAR. The parabolic SAR is a well known indicator which is being used throughout the world by the traders to find out the market trend. This indicator consist of the series of the dots. When the dots move below the price pattern on the chart, it indicate the uptrend in the market. When the dots move above the price pattern on the chart, it indicate that there is downtrend in the market.
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We can see from the above chart that SAR indicator have been used with the wedge pattern. When the breakout occur on the wedge pattern, the uptrend was expected. This false signal is filter out by the parabolic SAR indicator as even after the breakout, the parabolic SAR continued to move downward . The price of the assets was moving below the dots which indicate that there is still the downtrend and the wedge pattern produced the false signals.
Moreover, The volume is expected to decrease when the wedge pattern show the breakout but while using the volume indicator, we filter out the false breakout signals produced by the wedge pattern. As when the breakout on the wedge pattern occured, then instead of decreasing, the volume was increasing which indicate that the wedge pattern produced the false signals.
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In the above image we can see that the price was rising upward. The two trend lines were drawn which touch the price for multiple times and thus the wedge pattern was drawn. The lines keep coming close to each other and thus a point come when the lines met and breakout occur. The price is expected to fall down. The traders find it a good spot to exit from the market. But instead of falling downward after the breakout, the again started increasing and thus the false signals were produce by the wedge pattern which are highly harmful for the traders.
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To filter out the false signals we can use the indicators with the wedge pattern. We have use the Parabolic SAR. We can see from the above chart that SAR indicator have been used with the wedge pattern. When the breakout occur on the wedge pattern, the downtrend was expected. This false signal is filter out by the parabolic SAR indicator as even after the breakout, the parabolic SAR continued to move upward . The price of the assets was moving above the dots which indicate that there is still the uptrend and the wedge pattern produced the false signals.
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Moreover, The volume is expected to decrease when the wedge pattern show the breakout but while using the volume indicator, we filter out the false breakout signals produced by the wedge pattern. As when the breakout on the wedge pattern occured, then instead of decreasing, the volume was increasing which indicate that the wedge pattern produced the false signals.
Question 4. Show full trade setup using this pattern for both types of Wedges.( Entry Point, Take Profit, Stop Loss, Breakout)
Trade Setup Using Rising Wedge Pattern
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The above image is showing the full rising setup as the market is trending upward. We have drawn the wedge pattern by using the two trend lines. One on the above side of the price pattern which act as the resistance level and one on the lower side of the price pattern which act as the support level. The price keep touching the both lines for multiple time which confirm the wedge pattern. When these line meet with each other, the breakout occur. The sell order is placed right after the breakout occur in the market. The stop loss and take profit is set while placing the order. The stop lose is set a bit above the resistance level. The take profit is set by measuring the distance between the trendlines as shown above
Trade Setup Using Falling Wedge Pattern
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The above image is showing the full falling setup as the market is trending downward. We have drawn the wedge pattern by using the two trend lines. One on the above side of the price pattern which act as the resistance level and one on the lower side of the price pattern which act as the support level. The price keep touching the both lines for multiple time which confirm the wedge pattern. When these line meet with each other, the breakout occur. The Buy order is placed right after the breakout occur in the market. The stop loss and take profit is set while placing the order. The stop lose is set a bit below the resistance level. The take profit is set as shown above .
Conclusion
There are a lot of the pattern using in the crypto market. One among them is the wedge pattern. The wedge pattern is highly useful and easy to understand. This pattern helps the traders to determine when the enter into the market and which is best exit spot. Sometime, this pattern produce the false signals which can be filtered out using the indicators.
Cc: @sachin08
Hello respected @sachin08 @steemcurator02 @steemcurator01. My assignment will get expire in few hours. Please curate it
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