Hello All Steemians !!!
Today I'm going to make my Steemit Crypto Academy Homework task by professor @sachin08 that talking about Trading Using Wedge Pattern. Very interesting lessons. Actually I have very little knowledge about this, but I will try to discuss it to improve my writing skills. On this occasion I will try to discuss it.
Explain Wedge Pattern in your own word
The wedge pattern is one of the patterns that traders can analyze on cryptocurrency charts in executing strategies and conducting technical analysis before executing a trade. This pattern is formed on a chart based on price movements indicating the market is trending and about to experience a trend reversal. The price movement shows a convergence that intersects where the line made initially widens and continues to narrow. This pattern can be created by traders by drawing trendline support and resistance lines that combine several points based on price movements in certain trends.
The wedge pattern can be analyzed by the trader in a certain period of time where the cryptocurrency market is in an uptrend or downtrend by creating a trend line. The upper trendline is created by combining several resistance points reached by the price movement during a trend so it is called a resistance line. The lower trendline is created by combining several support points reached by the price movement during a trend so it is called a support line. This pattern can be relied on by traders to analyze market trends that show trend continuation or trend reversal which can be used as a reference to determine decisions and next steps in the trading.
In this case, the wedge pattern can help traders indicate a trend reversal that will occur after the market has experienced a breakout so that traders can place buy or sell orders at the right time. If this pattern formed in an uptrend and indicates a trend reversal, the trader can place a sell order at the start of the downtrend after the market breaks out. On the other hand, if this pattern is formed in a downtrend and indicates a trend reversal, the trader can place a buy order at the start of the uptrend after the market breaks out. This can be done by traders to execute trades that can bring profits and eliminate losses.
Explain both types of Wedges and How to identify them in detail
Rising Wedge
The rising wedge is a pattern that forms when the market is in an uptrend and indicates a trend reversal towards a downtrend. The market shows price movements that continue to rise and make several points of resistance and support. Here the trader can draw a trendline indicating upward convergence. Resistance and support line are created based on rising price movements that combine several points of resistance and support within a certain period. This shows a rising wedge pattern which initially widens, narrows and intersects at the top of the trend.
In this case, the rising wedge will confirm a reversal of the uptrend to a downtrend after the price movement reverses downwards and breaks the support line. This pattern indicates the strength of the trend is weakening due to the declining trading volume in the market and the supply and demand balance where buyers are unable to push prices up. After a market breakout, traders can execute trades by placing a sell order at the start of a trend reversal to maximize profits and minimize losses.
Based on the chart above, the XRP/USDT market is showing a rising wedge pattern forming on the chart. I analyze price movements that make higher highs and higher lows during an uptrend. I drew a trendline by combining several resistance and support points. The price movement reached the resistance and support lines and bounced back several times. The trendline that I made shows a rising wedge pattern where the lines continue to narrow and intersect at the top of the trend. Over time, the falling price movement that breaks through the support line is a confirmation that a trend reversal from an uptrend to a downtrend.
How to Identify Rising Wedge
Trendline
Traders should make a trendline where the resistance line is at the top and the support line is at the bottom. Trendlines are drawn based on rising price movements that combine at least 5 resistance and support points of which 3 on one trendline and 2 on another.Wedge Direction
Traders should create and analyze the direction of the wedge based on price movement where the resistance and support lines should slope upwards and will intersect at the top of the trend.Trading Volume
Traders should analyze the trading volume which shows a decline due to the balance of supply and demand in the market. In addition, the breakout volume can be small or large.
Falling Wedge
The falling wedge is a pattern that forms when the market is in a downtrend and indicates a trend reversal towards an uptrend. The market shows price movements that continue to fall and make several points of resistance and support. Here the trader can draw a trendline indicating downward convergence. Resistance and support line are created based on falling price movements that combine several points of resistance and support within a certain period. This shows a falling wedge pattern which initially widens, narrows and intersects at the bottom of the trend.
In this case, the falling wedge will confirm a reversal of the downtrend to an uptrend after the price movement reverses upwards and breaks the resistance line. This pattern indicates the strength of the trend is weakening due to the declining trading volume in the market and the supply and demand balance where sellers are unable to push prices down. After a market breakout, traders can execute trades by placing a buy order at the start of a trend reversal to maximize profits and minimize losses.
Based on the chart above, the XRP/USDT market is showing a falling wedge pattern forming on the chart. I analyze price movements that make lower highs and lower lows during a downtrend. I drew a trendline by combining several resistance and support points. The price movement reached the resistance and support lines and bounced back several times. The trendline that I made shows a falling wedge pattern where the lines continue to narrow and intersect at the bottom of the trend. Over time, the rising price movement that breaks through the resistance line is a confirmation that a trend reversal from a downtrend to an uptrend.
How to Identify Falling Wedge
Trendline
Traders should make a trendline where the resistance line is at the top and the support line is at the bottom. Trendlines are drawn based on falling price movements that combine at least 5 resistance and support points of which 3 on one trendline and 2 on another.Wedge Direction
Traders should create and analyze the direction of the wedge based on price movement where the resistance and support lines should slope downwards and will intersect at the bottom of the trend.Trading Volume
Traders should analyze the trading volume which shows a decline due to the balance of supply and demand in the market. In addition, the breakout volume can be small or large.
Do the breakout of these Wedge Patterns produce False Signals sometimes? If yes, then Explain how to filter out these False signals
In the world of cryptocurrency trading, the pattern analysis carried out by traders does not always have high accuracy because sometimes the market produces false signals including wedge patterns. The wedge pattern sometimes produces false signals although traders can draw resistance and support lines that will cross each other. This is evidenced if the price movement has a breakout but continues the trend like the chart below:
As a reliable trader, before executing a trade, it would be nice to add technical indicators that match the wedge pattern in analyzing the market. The use of multiple indicators will increase accuracy and help traders predict trend continuation or trend reversal in the market. In this case, the combination of the wedge pattern and the MACD indicator is believed to be able to filter out false signals that may occur.
Based on the chart above, the XRP/USDT market is showing a rising wedge pattern forming on the chart. I drew a trendline by combining several resistance and support points. False signals occur in the market when the price movement shows an increase after the breakout. The MACD indicator shows price movements that have a value above zero (0) and this is an indication of a continuation of the uptrend and no trend reversal. The MACD indicator confirms the reversal of an uptrend to a downtrend if the price movement has a value below zero (0). The MACD indicator can be used to filter out false signals in the wedge pattern thereby helping traders to place entry points after a trend reversal is confirmed.
Show full trade setup using this pattern for both types of Wedges
Rising Wedge
Based on the chart above, I analyzed that the XRP/USDT market is in an uptrend and shows a rising wedge pattern on the chart. The price movement shows an increase and makes several points of resistance and support. I drew 2 trend lines by combining some resistance and support points where the lines would intersect at the top of the trend. A downward price movement that breaks through the support line is a confirmation of a trend reversal from an uptrend to a downtrend. Here I place a sell order after the market breakout, my entry point was at $0.3222. I set the stop loss level slightly above the resistance line at $0.3432 and the take profit level at $0.2802 in a 1:2 ratio.
Falling Wedge
Based on the chart above, I analyzed that the XRP/USDT market is in a downtrend and shows a falling wedge pattern on the chart. The price movement shows a decrease and makes several points of resistance and support. I drew 2 trend lines by combining some resistance and support points where the lines would intersect at the bottom of the trend. An upward price movement that breaks through the resistance line is a confirmation of a trend reversal from a downtrend to an uptrend. Here I place a buy order after the market breakout, my entry point was at $0.4569. I set the stop loss level slightly below the support line at $0.4209 and the take profit level at $0.5289 in a 1:2 ratio.
Conclusion
In the world of cryptocurrencies, pattern analysis is an important factor that a trader should do before executing a trade. The wedge pattern can be analyzed by traders on the chart to predict the continuation or reversal of the market trend that will occur. A rising wedge is formed when the market is in an uptrend and a falling wedge is formed when the market is in a downtrend. This pattern can be created by drawing 2 trendlines that combine at least 5 resistance and support points of which 3 on one trendline and 2 on another. Traders can place buy or sell orders at the right time when the price movement breaks one of the trendlines and the market breaks out. This can help traders to make profitable trades.