When I wrote this in January 2003, we were still in a bear market, and so I concentrated on partial declines - they predict upward breakouts. They forecast the breakout direction from a chart pattern. This article discusses two such tips: partial declines and partial rises. I use stops to limit losses (don’t you?). Sometimes the tip turns out to be a lie, but that’s okay.
#Broadening descending wedge full#
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This site & the products & services LuxAlgo offers are for informational & educational purposes only. Trading is risky & most day traders lose money. The amplitude of the cyclical variations within a broadening wedge increases over time, thus potentially highlighting volatility clusters in higher time-frames. A broadening falling wedge follows the same scenario structure but with sellers instead of buyers. This scenario eventually repeats itself with increased volume, causing impulses and retracements of higher magnitude reinforcing a positive feedback loop until the price is judged overbought even by initial buyers.
This allows the creation of a new impulse, with only a divergence left.
These participants can be composed of initial buyers, accumulating positions, or late traders seeing the potential to buy at a better price. However, before the decline reaches the previously established low, certain market participants buy again. Contrarian traders judge the price to be trading above its intrinsic value, selling and thus creating a decline in prices. Momentum traders follow the initial impulse further pushing prices up. The cause of an ascending broadening wedge is a surge from an initial buying impulse, driving the price higher. Causes Of Broadening Wedgesīulkowski offers a description of the causes of broadening wedges in the market in terms of the market participant's behavior. Certain analysts close trades caused by partial rises/declines when the price reaches the support/resistance of the wedge, opening a new position in the case of a breakout while using the metric rule for setting their take profit. Selling directly after a partial decline would allow for higher profits. For a broadening descending wedge the measure rule would place our take profit at the highest high inside the formation.
Selling directly after a partial rise would allow for higher profits. For a broadening ascending wedge the measure rule would place our take profit at the lowest low inside the formation.
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