Greetings Everyone!
Welcome to the homework post for the 5th week of Crypto Academy. Professor @sachin08 has played a great role in teaching this community about chart patterns as he has previously taught us about flags, triangles, rectangles, and now wedge patterns. I have learned a lot about falling wedge and rising wedge from his course so I will be sharing my knowledge with you guys through this homework.
1. Explain Wedge Pattern in your own word.
There are several chart patterns to identify the future price of assets. Wedge is one of the renowned patterns as it shows both bullish and bearish outcomes. They are hassle-free to identify and show potential trend-reversal.
It is made up of 2 lines that connect with each other in the ending point. The lines work as potential support and resistance due to which price keeps on consolidating between them. It represents the pause in the market and then starts a strong move in opposite direction after breaking out from this pattern. There are 2 types of wedge patterns, the first one is rising wedge and the second one is falling wedge.
The below-mentioned image is the perfect example of a falling wedge pattern and you can see that price pumped after breaking out from the resistance line.
As you can see from the following chart pattern of ETH/USDT that it was making a rising wedge pattern and started a downtrend move after breaking out from the pattern.
2. Explain both types of Wedges and How to identify them in detail. (Screenshots required)
2. Explain both types of Wedges and How to identify them in detail. (Screenshots required)
Rising Wedge Pattern
The rising wedge is a chart pattern that indicates bearish outcome. It is simple to recognize as price moves between support and resistance lines converging toward a single point. The price will be ranging in an uptrend and after breaking the support line, it will be starting a bearish trend. The price moving between the pattern shows that the bulls are losing control of the market and bears will take over the power soon.
There are a few things to consider while identifying this pattern. The first thing is the 2 lines that work as support and resistance sloping upside. The price must touch both trend lines 5 times to make it valid. The volume of assist should be also considered for a potential breakout. I have also attached a screenshot of an example for better understanding.
Falling Wedge Pattern
The falling wedge is the complete opposite of the rising wedge pattern. It indicates a bullish price but the assets have to break out from the support line first. It can be recognized by consolidation between 2 declining lines. But there are some elements to consider while identifying the pattern.
The most important part is the 2 lines that work as a support and resistance to the price. It keeps on consolidating between 2 lines and it must touch a price minimum of 5 times. A trader should also take a look at the volume to find out more about price action. You can see that the below-mentioned chart pattern of BTC/USDT is the perfect example of a falling wedge pattern.
3. Do the breakout of these Wedge Patterns produce False Signals sometimes? If yes, then Explain how to filter out these False signals.
3. Do the breakout of these Wedge Patterns produce False Signals sometimes? If yes, then Explain how to filter out these False signals.
Every chart pattern and technical indicator can produce fake buy and sell signals which can result in loss. That’s the key reason due to which the majority of professionals advise to add confluence by using several indicators and patterns. It can help you to identify if the signal is fake or not and secure yourself from loss.
I will show you how I use RSI with chart patterns to filter the signal and open position that can provide profit only. As you can see that price was making a rising wedge pattern and the price broke the support line which is the entry signal but in order to avoid the fake signal, I opened RSI which shows that the asset was oversold which further affirms that the price can become bearish.
As I have marked in the following chart, the price really started a strong bearish move making my trade setup valid.
4. Show full trade setup using this pattern for both types of Wedges. ( Entry Point, Take Profit, Stop Loss, Breakout)
4. Show full trade setup using this pattern for both types of Wedges. ( Entry Point, Take Profit, Stop Loss, Breakout)
Now that I have learned how to identify and trade using these patterns, I will provide complete setups of both falling wedge and rising wedge so that you can easily understand where to place stop-loss, book profit, and much more.
Rising Wedge Setup
The rising wedge is a bearish pattern that shows a change in trend. I found this pattern on KSM/USDT chart and marked it so that you can easily understand it. The price was consolidating between both lines and respecting it. However, it broke the support which was my entry point and put the stop loss above the resistance line while my RR was 1:5. As you can see that the price easily hit my TP.
Falling Wedge Setup
A falling wedge indicates that the price will become bullish after breaking out. I found a great setup on KSM/USDT and draw the pattern. The price broke the resistance line which is the entry point and as for stop loss, I prefer to place it below the support line. The risk to return ratio was 1:5 and the price was able to reach the TP easily without hitting the stop loss.
5. Conclusion
After completing my homework post, I have come to the point that every trader should have a great grip on wedge pattern as it is easy to identify and often occurs on the crypto market. It can give huge profit if the pattern is valid. Overall, I would like to thank the professor for his kind efforts in teaching us renowned chart patterns.
Thanks For Visiting My Post And Your Appreciation
Cc:
@sachin08
