In Price Action Trading Strategy

One of my favorite price patterns for forex is the broadening wedge, simply because they happen so often and can signify so much when found in various contexts. When occurring after a trend is well developed, they can imply that things are about to cool off. You can find these, pennants, flags, reverse pennants etc., within a trend in order to assess future movement and potentially weasel your way into a trade.

But what makes these so special is that when found in a well developed trend, they break out to the upside and you've got a clearance thrust underway (in which the underlying trend becomes more parabolic). I've been writing a lot about trend following techniques these days and thought this deserved a place in the pile.

The figure below shows cable vs the dollar in today's pattern. Outcome of this?

1. Price consolidates beyond the breaking point (~1.6226) and makes one final (appx 2X the range on the current break to peak) push to the target (green line) before collapsing back below the upper trendline.
2. Price makes an immediate retreat well back into the range (red line, target)

I shoot for a conservative approach in terms of trading something like this. If I'm not long into the break, then wait it out and look for reversal structures circa the high target or a pickup (short term long) circa the low (red line).

We are now in the 4 day block around the end of the month (2 to close, 2 to open), where volatility generally picks up. Just some quick notes to wrap up the week.

EURUSD Forex Broadening Wedge

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Showing 5 comments
  • george

     nice structure, good work,,
    thx for yr work, going through yr site and having joy with yr views and nuggets

  • Georgewild2000

    i c its going through moderation,,pls remove this one…………………………Price consolidates beyond the breaking point (~1.6626)  – i guess the number is mistyped?

    • Steve W

      Thanks George. Yes you were right….no editors ’round these parts but me. I updated the post to reflect.

  • George

    hi Steve,,,btw., when i said to remove this one, i meant ”my message” regarding the mistype, otherwise it would b kinda rude if i were meaning to remove the mistype in that kind of tone tone,, , i aint that kind  🙂
    i was thinking about this set up and wondered what would make u to pull the trigger at the red  level…lets say the level will turn the price. would u go to lower tf to look for signs of exhaustion when arriving there,,triple tap,div. candle formation,,,or just hit it when it hits the level…….i know 🙂 hard to answer as everybody carries different book in his wide range arsenal and the options are endless,,,but still, i wondered 🙂

    • Steve W

      Realize that and thanks anyway no worries here. Any moves off of the red line would be initially considered short term, and even then I would want to reanalyze when price gets down there as to the exact level. .618 of the range is usually conservative enough for a target like this. Just checking MNI I see there are even stops around that area, which would make sense because we are a decent amount below the local low. When you find these at the inception of a trend, however, you’ve just got more reason for follow through. As I say we are towards a peaking point where things start to diverge. You also have the option of using confirmation entry like short term trendline breaks, etc. in the event of either movement.

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