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Bear Wedge – Technical Analysis in a Bearish Market


Dec.31.2016

A bear wedge is a pause in the current trend. The trend can either reverse or continue after its formation.

Also known as a falling wedge, it is very similar to a descending triangle in that you can draw two converging lines from a series of peaks and valleys. The difference is that, a descending triangle has one rising and one falling line, but in a bear wedge, both lines are moving in the same direction; Both lines are moving down.

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Bear Wedge Metaphor

For shoe-loving Invest Divas, this could be the perfect metaphor so you don't ever miss it on the charts! In a falling (or bear) wedge, both lines are falling, but one of them is steeper than the other, therefore they are not parallel:

Bear Wedge Pattern - Technical Metaphor Bear Wedge Pattern - Technical Metaphor

 

As we said before, a falling wedge can serve as either a reversal or a continuation pattern. This is how to distinguish the two: a falling wedge is a temporary interruption of an uptrend, but it is a reversal signal for a downtrend.

 

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In other words, if the bear wedge is formed during an uptrend, chances are, that the uptrend will continue after the completion of the wedge. If the wedge is formed during a downtrend, we can expect a reversal.

 

Bear Wedge During an Uptrend Bear Wedge During an Uptrend

In other words, after the falling wedge pattern is completed, the pair usually breaks out to the upside, regardless of the previous trend.

Bear Wedge During a Downtrend Bear Wedge During a

Downtrend

How to Make Some Pips off a Bear Wedge

As we have talked about this in our IDDA approach, this pattern is not confirmed until the resistance level is broken. Whether the falling wedge is a continuation pattern interrupting an uptrend or a reversal pattern during a downtrend, the pattern is considered bullish. Why? Because as you can see in the figures, every time the pair comes out of a falling wedge, it is likely to go up! Here are Falling Wedges in action:

bear-wedge-during-downtrend-chart Bear Wedge Reversed a Downtrend on Pound-Dollar Daily Chart

 

falling-wedge-during-uptrend-chart-NZDUSD-Daily

 

 

Here is how an Invest Diva would make money off a bear wedge, after checking with other forms of the Invest Diva Diamond, or the IDDA approach to trading:

1. Place an entry order to buy the currency pair above the upper line of the falling wedge

2. Set a limit to close the position at the price to which the pair has moved up the same amount as the height of the beginning of the formation.

3.  Refrain from being greedy.

4. Enjoy you newly earned pips.

 

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Kiana 喜愛成
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