08/17/2018 |
Trading Wedge Formations Using TrendSpider’s Trendline and Indicator Alerts
When it comes to trading, a huge piece of figuring out the puzzle is being able to identify simple patterns and have the knowledge of what their general sentiment is (i.e. bullish or bearish setup). One of the main patterns technical traders focus on is the wedge pattern. This pattern is essentially when support and resistance trend lines are both sloped instead of one being completely horizontal (triangle patterns) and the other being sloped.
In this strategy guide article, we will focus on the 3 different types of wedge patterns out there as well as how to utilize the TrendSpider platform once one is found. One of the main things to remember with all patterns is that confirmation is needed before entering the trade. Each trader has a different set of confirmation signals they look for when entering a trade within these setups. The general conformation is a mix of volume and divergence on the preferred indicators they trade with.
What is an Ascending Wedge?
The first set up in the family of “wedge patterns” is known as the “Ascending Wedge Pattern” (also known as a rising wedge) which forms when the price is in a strong upward channel but the slope of the support is steeper than the slope of the resistance, creating the “rising wedge” appearance. The resistance line on the ascending wedge essentially shows that buyers are exhausting as buyers are starting to lose momentum and the price gets continually tighter in the wedge. In general, this setup is generally looked at as bearish but there are plenty of instances (like any setup) in which the pattern has not followed its general sentiment.
What is a Descending Wedge?
A brother to the ascending wedge, the “Descending wedge” which is also known as the falling wedge, is the setup that generally has bullish sentiment out of the three wedge formations. In this case, selling starts to lose momentum at the end of the wedge and technical traders start to eye the ticker for a potential breakout play. Sometimes the self-fulfilling prophecy of technical trading can cause a falling wedge to breakout with no fundamental backing. As always this type of setup can easily break down as well which is why it is imperative to use a confirmation strategy that is backtested and that each trader is comfortable with.
What is a Symmetrical Wedge?
The last setup in the family of the “wedges” is the most neutral one called the symmetrical wedge. In this case, both the support and resistance slopes are almost identical creating a “symmetrical wedge” appearance. The symmetrical wedge is considered neutral out of the three with confirmation needed the most on this one.
TrendSpider Wedge Strategy: Trendline and Indicator Alerts
As you have seen above, wedges can be a very profitable pattern if traded corrected with conviction to your trading plan. However, in some instances, these trades may only be prime for a few minutes so knowing exactly when these things occur is crucial to being successful.
In this section, we will focus on a couple of the main ways we have identified traders can utilize the TrendSpider platform to make their wedge trading more efficient. One of the main ways TrendSpider adds utility to traders is through our alerts feature which allows you to pick any trendline or indicator.
Conclusion
In general, wedge setups can be very profitable for traders who trade them with conviction and a proper plan. It is important to remember that the TrendSpider platform should always be used as a resource for further research and due diligence for any stock, not a platform to alert traders when to enter or exit. Utilizing our automatic features will help you become more efficient so you can spend more time taking the next steps to be a more successful trader.
