The wedge pattern strategy involves chart and graphical analysis, and it is fairly accurate when it comes to predicting the price movement for the near future for a number of different kinds of assets. The wedge pattern is a shape on a chart that resembles two sides of a triangle, and when used correctly, it can anticipate a breakthrough in price movement, and is a strong tool, especially over the short term.
It’s Time to Apply This
The wedge pattern strategy is used when there is a distinct trend occurring in the price of an asset. Based upon the chart of the asset’s price movement, you will determine relative lines of support and resistance. These are lines drawn over a chart to help you better visualize how the support and resistance play out in terms of the trend. If you look at the top two dominant peaks in the short term chart and connect them with a line, extending indefinitely in either direction, and then do the same thing with the bottom two points, you will find a wedge pattern has been created.
This strategy tends to work even better if you use it in a manner where candlestick charts are used. When you find that a candlestick becomes “entrenched,” your trades will have an added degree of success. An entrenched pattern in this case happens when the entirety of the candlestick is below or above the signal line, preferably moving in the direction of the trade that you are wishing to make. This is not absolutely necessary for success, but it will give you a higher profit rate if you prefer to make fewer trades per day, which might return fewer overall dollars, but does allow you to decrease risk.
In essence, the wedge pattern strategy is a variation of the support and resistance breakthrough strategy. Instead of two straight lines to work with, though, you have two lines that are diverging and forming a wedge of sorts. When the price breaks through the lower line, you can assume that further drops in price are in the near future. The same is true when a breakout above the top line occurs, further price rises are likely. This strategy is especially helpful when the wedge is moving downward and the breakout occurs on the support line, or when the wedge is moving upward, and the breakout occurs over the resistance line. These movements should trigger a buy for a call or a put binary option, depending upon the movement.
Remember that the wedge pattern trading strategy can be used in either a bearish or a bullish manner. It is important to note that the details of one need to be inversed if you are used to using the other, but given that this is an advanced trading strategy, that should already be quite obvious.
There are of Course Drawbacks
One of the biggest drawbacks of this strategy is that it is subjective to a degree. It doesn’t take solidified levels of support and resistance like the original strategy uses, but rather it is created by superimposing lines over a price chart. These lines should make sense when you look at them, but the problem that arises is the fact that one traders chart will vary from another’s. And because these lines do have a sort of arbitrariness to them, there is absolutely no guarantee that a continuation of the dominant trend will occur, or if a price reversal is in the near future. As such, this strategy really shouldn’t be used unless you have some sort of other method of checking price movement in place in addition to the wedge pattern.
We make it our mission to not recommend anything but the best – which, according to industry experts, is IQ Option, the top regulated broker for your country with a minimum deposit of ONLY $10!
Between 74-89 % of retail investor accounts lose money when trading CFDs