One of the models used in price chart technical analysis is Wedge wedge model. This model is commonly used in the forex market, stock market, binary options, and today is applied to the entire virtual currency market. This article will help you fully understand what is a wedge model? What types are available? How to use and deal with it?
What is the wedge model?
Simply put, the wedge model is a price graph that appears to have a wedge-like appearance. This type is usually represented in the form of candlesticks or bars. However, today most of the price patterns are usually represented as candlesticks.
Formally, the wedge model also has the form of a triangle. But in technical analysis of price graphs, due to its different nature related to the evolution of price, it is distinguished into a different pattern with the so-called wedge model.
The wedge model is located in both the uptrend market or the downtrend market. In both trends can also appear both types are Wedge wedge model up and Wedge wedge model downward.
The similarity between the wedge model and the triangle model
- Both types of models have the shape of a triangle.
- Both support and resistance are converging to the right of the price chart.
Differences between wedge model and triangle model
- In the wedge model, the two lines of support and resistance are both up or down. See the picture below:
- In a triangle model, at least one of the two paths must slope up or down. Take a look at the pictures below:
Wedge wedge model up
As the name implies, the wedge-up wedge model has a pointed tip pointing up. Both support and resistance lines are sloping upward.
An upward wedge pattern can be in both the uptrend and the downtrend. Regardless of the trend, prices often go against the wedge's direction. This means:
- If the upward wedge pattern is in an uptrend, it is a sign of a trend reversal. Although in this model, the peak is still higher than the previous peak, but the peaks are having weaker momentum (the slope decreases compared to the slope of the support line connecting the bottoms). This means that the selling pressure is increasing. At some point the pressure is strong enough (and often there will be underlying support news) it will break support and go down.
- If the upward wedge pattern is in a downtrend, it is a sign of a continuing trend. At this point, the wedge formation stage only acts as a pause to accumulate. At some point it will break support and go down.
Wedge wedge model downward
As the name implies, the wedge-down wedge model has a pointed tip pointing downwards. Both support and resistance are sloping down.
The wedge-down wedge pattern can be in both an uptrend and a downward trend. Regardless of the trend, prices often go against the wedge's direction. This means:
- If the downward wedge pattern is in an uptrend, it is a sign of the trend. The "wedge" formation stage only acts as a pause to accumulate.
- If the downward wedge pattern is in a downtrend, it is a sign of a trend reversal. During the "wedge" formation, although the lower bottom is still lower than the previous bottom, the downward force is decreasing (shown at the slope of the support line is less than the slope of the resistance line). The end result is that prices often reverse.
Guide effective transactions with the wedge model
How to deal with an upward wedge pattern
As you know, whether the price is in an upward or downward trend, when wedge pattern upward appearance, the price will often go down. So, as soon as the price breaks out of the support line slanting below you can place a sell order.
However, that is just the most basic way of trading. To trade effectively when prices break out, you should refer to the following article:
The deal with the wedge price model is downward
As you know, whether the price is in an upward or downward trend, when wedge pattern downward appearance, the price will often go up. Therefore, as soon as the price breaks out of the resistance line at the upper boundary, you can place a buy order.
However, that is just the most basic way of trading. Once again I recommend reading the following article:
Summary
As you know, all models in price chart technical analysis are just probabilities. Price does not always follow these patterns. So you must always know how to manage capital adequately for your account. Especially know how to set Stop loss and Take Profit effectively.
For the upward wedge model and the downward wedge model, you can refer to a summary of the price direction and its statistical probability as shown in the following figures:
Author: Pham Khuong
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