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Ascending Broadening Wedge Pattern – Detailed Guide with Examples

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Written by Timothy Sykes
Updated 9/12/2023 10 min read

*Written by AI, Edited by Humans

The Broadening Wedge Pattern is a technical chart pattern characterized by diverging trend lines, forming a shape that resembles a widening wedge. This pattern can appear in both uptrends and downtrends and is used by traders to signal potential bullish or bearish price movements. The pattern is confirmed by a series of higher highs and lower lows, with the trend lines drawn from these points diverging from each other. It offers key entry and exit points for traders and is considered a reliable pattern when confirmed by other indicators and volume.

Still with me? Good. We’re diving deep into the anatomy of this pattern, breaking down its formation, characteristics, and even throwing in some real-world examples. Whether you’re trading stocks, futures, or any other investment vehicle, this guide is your one-stop-shop for all things ascending broadening wedge.

This pattern can be your ticket to profitable trades, but only if you understand its nuances. Let’s get into it.

What Is the Broadening Wedge Pattern?

The broadening wedge pattern is a chart pattern that’s characterized by diverging trend lines. Imagine a wedge that’s getting wider — hence the term “broadening.” This pattern can appear in both uptrends and downtrends and is a favorite among traders who rely on technical analysis.

On a related note, the broadening wedge pattern isn’t the only formation traders should be aware of. The rectangle pattern, for instance, offers its own set of trading opportunities and challenges. Understanding a variety of patterns can only enhance your trading toolkit. For a deep dive into the rectangle pattern and how it contrasts with the broadening wedge, check out this guide.

Formation of an Expanding Wedge Pattern

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The formation of an expanding wedge pattern starts with a series of higher highs and lower lows. The trend lines drawn from these peaks and troughs will start to diverge, creating the broadening shape. The support line and resistance line are the key players here. They define the boundaries within which the price action takes place.

Characteristics of an Expanding Wedge Pattern

The main characteristic of an expanding wedge pattern is the divergence of its trend lines. Unlike other chart patterns like triangles, the lines here move away from each other. Volume often increases as the pattern develops, adding another layer of complexity to your analysis.

Broadening Wedge Pattern Examples

Examples are the lifeblood of understanding any chart pattern. In the case of the broadening wedge, look for instances where the price has made a significant move either towards the support or resistance line, followed by a reversal. These are the moments that can make or break a trade.

Is Broadening Wedge Pattern Bullish or Bearish?

Here’s where things get interesting. The broadening wedge pattern can be both bullish and bearish. In an uptrend, the pattern often signals a continuation of the trend, but it can also indicate a potential reversal in a downtrend. The direction largely depends on the breakout — whether it happens above the resistance line or below the support line.

Effective Trading Strategies Using the Expanding Wedge Pattern

Let’s talk strategy. The expanding wedge pattern isn’t just a pretty chart formation; it’s a tool that can help you make informed trading decisions. But here’s the deal: you need the right strategy to capitalize on it. Whether you’re an investor looking for long-term gains or a trader eyeing short-term price action, understanding how to enter and exit trades with this pattern is crucial.

First off, information is your best friend. The more you know about the behavior of buyers and the types of broadening wedges, the better your trades will be. Keep an eye on prices and trendlines, and use them to identify key levels for entry and exit. Tips and reasons for trading this pattern can vary, but the number one rule is always to have a solid risk management strategy in hand.

If you’re seeking alternatives, consider the bear pennant pattern. This pattern can also offer valuable insights into market behavior and can be particularly useful in a bearish market. Knowing when and how to use it can be a game-changer. For a comprehensive look at the bear pennant pattern, this resource has got you covered.

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Entry Strategy for Expanding Wedge Pattern

When it comes to entry strategies, timing is everything. Look for a breakout above the resistance line in an uptrend or below the support line in a downtrend. The breakout is your green light to enter the trade. Use indicators like volume to confirm the move.

Exit Strategy When Dealing with an Expanding Wedge Pattern

Knowing when to exit is just as crucial. Set a profit target based on the height of the pattern at its widest point. This gives you a numerical value to aim for and helps in risk management.

Profit Target and the Rule of Thumb for Setting It

Your profit target should be set based on the height of the broadening wedge at its widest point. This rule of thumb gives you a realistic expectation of the price move and helps you avoid the pitfalls of greed and fear.

Stop Loss Placement and Risk Management for Expanding Wedge Pattern

Always, and I mean always, set a stop loss. Place it just above the recent high in a downtrend or below the recent low in an uptrend. This minimizes your risk and ensures you’re not throwing away money on a bad trade.

Advanced Techniques

So you’ve got the basics down, but what about the advanced stuff? When trading broadening wedges, there’s more than meets the eye. Advanced techniques can help you squeeze out extra profits or, at the very least, avoid some common pitfalls.

For instance, understanding the psychology of buyers at the bottom of the wedge can offer insights into potential pullbacks or reversals. Similarly, knowing how to read trendlines in relation to broader economic factors can give you an edge. Investors often look for these subtle cues to tweak their strategies.

Speaking of advanced techniques, the wedge pattern is another formation that traders frequently encounter. It comes with its own set of advantages and drawbacks. Being aware of the strengths and weaknesses of various patterns can help you make more informed decisions. For an in-depth look at the pros and cons of the wedge pattern, this guide has got you covered.

Let’s be clear: advanced doesn’t mean complicated. Sometimes the best tips are the simplest, like setting specific levels for stop losses based on a set number of pips or percentage points. Again, your performance isn’t set in stone; it’s an ongoing process of learning, adapting, and, yes, sometimes failing. So, as a final disclaimer, always be prepared for the ups and downs of the trading world.

False Breakouts and Partial Rises within a Range-Bound Market

False breakouts are the bane of any trader’s existence. They occur when the price action seems to break the trendline but then reverses. In a range-bound market, these can be particularly tricky. Always wait for confirmation before entering a trade.

Downward Breakouts from Resistance Lines in a Bearish Trend

In a bearish trend, a downward breakout from the resistance line is a strong sell signal. This is where you want to go short, but make sure to set your stop loss to minimize risk.

Upward Breakouts from Support Lines in a Bullish Trend

Conversely, in a bullish trend, an upward breakout from the support line is your cue to go long. Again, set a stop loss and a profit target to manage your risk effectively.

It isn’t a silver bullet for your trading plan — but the broadening wedge pattern is one of the many topics you should learn as part of your trading education!

Trading isn’t rocket science. It’s a skill you build and work on like any other. Trading has changed my life, and I think this way of life should be open to more people…

I’ve built my Trading Challenge to pass on the things I had to learn for myself. It’s the kind of community that I wish I had when I was starting out.

We don’t accept everyone. If you’re up for the challenge — I want to hear from you.

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Trading is a battlefield. The more knowledge you have, the better prepared you’ll be.

Do you use the broadening wedge pattern in your trading strategy? Let me know in the comments — I love hearing from my readers!

Frequently Asked Questions

What Is the Success Rate of Rising Wedges?

The success rate of rising wedges can vary, but generally, they are considered reliable patterns if confirmed by other indicators and volume. However, like any trading strategy, there’s no guarantee of success.

What Are Some Common Misconceptions About the Expanding Wedge Pattern?

One common misconception is that the broadening wedge pattern is always a reversal pattern. This is not true; it can signal both continuation and reversal, depending on various factors like volume and the prevailing trend.

How Does the Expanding Wedge Pattern Differ from Other Trading Patterns?

The key difference is in the trend lines. While most patterns have converging trend lines, the broadening wedge has diverging ones. This makes it unique and offers different trading opportunities.

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Timothy Sykes

Tim Sykes is a penny stock trader and teacher who became a self-made millionaire by the age of 22 by trading $12,415 of bar mitzvah money. After becoming disenchanted with the hedge fund world, he established the Tim Sykes Trading Challenge to teach aspiring traders how to follow his trading strategies. He’s been featured in a variety of media outlets including CNN, Larry King, Steve Harvey, Forbes, Men’s Journal, and more. He’s also an active philanthropist and environmental activist, a co-founder of Karmagawa, and has donated millions of dollars to charity. Read More

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* Results are not typical and will vary from person to person. Making money trading stocks takes time, dedication, and hard work. There are inherent risks involved with investing in the stock market, including the loss of your investment. Past performance in the market is not indicative of future results. Any investment is at your own risk. See Terms of Service here

The available research on day trading suggests that most active traders lose money. Fees and overtrading are major contributors to these losses.

A 2000 study called “Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors” evaluated 66,465 U.S. households that held stocks from 1991 to 1996. The households that traded most averaged an 11.4% annual return during a period where the overall market gained 17.9%. These lower returns were attributed to overconfidence.

A 2014 paper (revised 2019) titled “Learning Fast or Slow?” analyzed the complete transaction history of the Taiwan Stock Exchange between 1992 and 2006. It looked at the ongoing performance of day traders in this sample, and found that 97% of day traders can expect to lose money from trading, and more than 90% of all day trading volume can be traced to investors who predictably lose money. Additionally, it tied the behavior of gamblers and drivers who get more speeding tickets to overtrading, and cited studies showing that legalized gambling has an inverse effect on trading volume.

A 2019 research study (revised 2020) called “Day Trading for a Living?” observed 19,646 Brazilian futures contract traders who started day trading from 2013 to 2015, and recorded two years of their trading activity. The study authors found that 97% of traders with more than 300 days actively trading lost money, and only 1.1% earned more than the Brazilian minimum wage ($16 USD per day). They hypothesized that the greater returns shown in previous studies did not differentiate between frequent day traders and those who traded rarely, and that more frequent trading activity decreases the chance of profitability.

These studies show the wide variance of the available data on day trading profitability. One thing that seems clear from the research is that most day traders lose money .

Millionaire Media 66 W Flagler St. Ste. 900 Miami, FL 33130 United States (888) 878-3621 This is for information purposes only as Millionaire Media LLC nor Timothy Sykes is registered as a securities broker-dealer or an investment adviser. No information herein is intended as securities brokerage, investment, tax, accounting or legal advice, as an offer or solicitation of an offer to sell or buy, or as an endorsement, recommendation or sponsorship of any company, security or fund. Millionaire Media LLC and Timothy Sykes cannot and does not assess, verify or guarantee the adequacy, accuracy or completeness of any information, the suitability or profitability of any particular investment, or the potential value of any investment or informational source. The reader bears responsibility for his/her own investment research and decisions, should seek the advice of a qualified securities professional before making any investment, and investigate and fully understand any and all risks before investing. Millionaire Media LLC and Timothy Sykes in no way warrants the solvency, financial condition, or investment advisability of any of the securities mentioned in communications or websites. In addition, Millionaire Media LLC and Timothy Sykes accepts no liability whatsoever for any direct or consequential loss arising from any use of this information. This information is not intended to be used as the sole basis of any investment decision, nor should it be construed as advice designed to meet the investment needs of any particular investor. Past performance is not necessarily indicative of future returns.

Citations for Disclaimer

Barber, Brad M. and Odean, Terrance, Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors. Available at SSRN: “Day Trading for a Living?”

Barber, Brad M. and Lee, Yi-Tsung and Liu, Yu-Jane and Odean, Terrance and Zhang, Ke, Learning Fast or Slow? (May 28, 2019). Forthcoming: Review of Asset Pricing Studies, Available at SSRN: “https://ssrn.com/abstract=2535636”

Chague, Fernando and De-Losso, Rodrigo and Giovannetti, Bruno, Day Trading for a Living? (June 11, 2020). Available at SSRN: “https://ssrn.com/abstract=3423101”