It is common for day traders to rely on price charts to time the market. And, what helps them in identifying the exact time to market are various chart patterns. Several of these patterns indicate market volatility or moments of consolidation when indecision prevails in the market. Traders reckon that when price action breaks away from a certain pattern, it signifies either continuation or reversal of a trend. Ascending broadening wedge is one such formation. After the manifestation of the ascending wedge pattern in an uptrend, the asset price trend reverses downtrend. Hence, it is a bearish reversal pattern.
An ascending broadening formation forms an inverted triangle shape in the price chart. It signifies market volatility, where buyers try to stay in control, and sellers try to take control of the market. It is a bearish reversal pattern that forms in the uptrend. In an ascending wedge pattern, the price fluctuates between the upper resistance line and the lower support line.
What Is An Ascending Broadening Wedge?
Ascending broadening pattern belongs to the family of wedge patterns.
Wedge patterns are either converging when the resistance and support lines gradually converge as the pattern progresses. Or broadening, where price volatility increases, and as a result, the upper and lower limit lines diverge from each other, creating an inverted triangle shape. Wedges are usually strong enough signals to indicate a reversal. They have a better track record than other formations.
An ascending pattern usually occurs when the asset price is rising for a while. Unlike other reversal patterns, the ascending broadening wedge pattern doesn’t indicate waning buying forces. But an effort from the sellers to take control over the market.
Identifying An Ascending Broadening Wedge Pattern
In ascending broadening wedge structure, the price makes a low and rises. Traders then follow the price movement as it registers higher highs and higher lows within a range. The peaks and throughs are then joined to form the upper and bottom limit lines, respectively. The price must touch both the upper and the lower trend lines three times in an uptrend movement, with the resistance line rising steeply than the bottom line, to confirm the pattern.
While the pattern is forming, volume rises significantly when the price line breaks the support line.
Understanding Ascending Broadening Wedge
It is a pretty strong reversal pattern with 75 percent accuracy in predicting a reversal. On 80 percent instances, the exit is bearish. Hence it is a bearish reversal. There are easy and simple ways to identify an ascending broadening pattern in a price chart.
- The pattern generally occurs at the end of an uptrend
- It has the famous tilted megaphone shape
- The upper trendline is steeper than the bottom line
- The price touch each trend lines usually three times
- The volume rises when the price moves up and declines when it lowers
- Usually, the volume gradually increases with time
When the price breaks through the lower line, it usually has a steep and uninterrupted fall-through. Sellers enter a short position when the price starts to decline.
Trading In Ascending Broadening Wedge
There are a few ways to setup a trade when the price moves within the range.
Once the pattern is confirmed,traders usually trade within the range or when the price line breakout from the limits. A swing trader will enter the market when the price line is rising and execute the trade when it touches the upper trendline while placing a stop-loss tightly at the lower trend line level.
Most traders will look out for broadening tops and bottoms. The price line tends to touch each of the upper and lower trend lines at least thrice during the formation of the pattern, and hence these give potential trading opportunities. The rule of thumb is to trade in the direction of the breakout.
It is clear from the discussion of ascending broadening wedge definition that it signals possible selling opportunities. However, traders need to confirm the direction of the breakout before taking a position. Although ascending broadening wedge pattern is a robust reversal pattern, chances are still there of a false breakout. Hence, one needs to wait for confirming candles to appear in the chart. Most traders consider partial rise and fall when the price line fails to touch either upper or lower trendlines, to indicate more forceful breakouts. When there is a partial rise, in 8 out of 10 cases, the result is a downward breakout.