Robert M. Mennella
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"Descending Wedge Breakout hits the Bullseye. 🎯
A broadening wedge, like an expanding wedge, is a reversal pattern characterized by diverging trendlines. The key features of a broadening wedge are: 🧀
Formation:
A broadening wedge is formed by drawing two trendlines. One connects higher highs, and the other connects lower lows. Unlike a contracting wedge, where the trendlines converge, in a broadening wedge, the trendlines diverge, creating a shape that resembles a megaphone or cone.
Characteristics:
The pattern has an expanding range, indicating increased volatility and uncertainty in the market. It is often considered a bearish pattern, suggesting a potential reversal to the downside.
Volume:
Volume analysis is important when interpreting a broadening wedge. Typically, volume tends to decrease as the pattern develops, signaling a lack of conviction in the prevailing trend.
Breakout:
The breakout from a broadening wedge can occur in either direction, but it often leads to a reversal against the preceding trend. In a bearish broadening wedge, the breakdown is usually to the downside.
Confirmation:
Traders often wait for a confirmed breakout by observing a decisive move beyond one of the trendlines. Confirmation may involve a strong price move accompanied by a surge in volume.
Target:
The price target for a broadening wedge is typically measured by taking the widest part of the pattern (the distance between the two trendlines) and projecting it in the direction of the breakout.
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