Descending wedge (turn model)

Descending wedge is the bull model, which starts with a broad part of the top and narrows as the downward movement of prices. This price action forms a cone which bends downwards, as reactionary maxima and minima converge. In contrast to the symmetrical triangle, which does not have any particular inclination, and a gradient descending wedge definitely leans down and have a bullish bias. However, this bullish bias can not be defined clearly to break the resistance. Descending wedge may also be included in the category of continuation patterns. As a model for the continuation of the downward wedge will still bend down, but the slope will be against the prevailing trend is ascending. As a model of turning, descending wedge bends downward in the direction of the prevailing trend. Regardless of the nature (or the continuation of a turn), descending wedge is considered as a model Bull.

1. Prior Trend: To qualify as a model of formation of turn, must be prior to the trend to turn. Ideally, if the descending wedge is formed after a long downward trend, and notes the final minimum. The model is usually formed over a period of 3-6 months (for long-term scale), and the previous top-down trend, in this case, should continue for at least 3 months.

2. The top line of resistance: it is required, пo at least two maximum reaction to form the upper resistance line, although ideally it would be three. Each reaction maximum must be lower than previous peaks.

3. The bottom line of support: requires at least two minimum reaction to form the bottom line of support. Each reaction must be a minimum wage lower than the previous.

4. Convergence: The upper resistance line and lower support line converge to form a cone as the model. Reaction minima still penetrate through the levels of previous minima, but this penetration becomes increasingly small. The smaller decline indicates a decrease of pressure vendors to form a bottom line of support with less negative slope than the upper line of resistance.

5. Breakthrough Resistance: bullish character models are not confirmed until the line of resistance will not be convincingly broken. Sometimes prudent to await the break above the previous peak of reaction for further confirmation. Once the resistance broken, sometimes it can be a correction to test the newly level of support.

6. Volume: while the volume is not particularly important for the rising wedge is a significant component validation breakthrough in the downstream wedge. Without the increase, a breakthrough will not be enough convincing, and may be vulnerable to failure.

As in the case of the ascending wedge, descending wedge can be one of the most difficult graphic models to accurately recognize and related trade. When the lower maxima and lower minima are formed, as wedge for downward, the market remains in the descending trend. Descending wedge is designed to determine the reduction in downward momentum and prepare for a potential turnaround trend. Even though the pressure may reduce the sellers, buyers did not win until you have broken the resistance. As is the case with most models, it is important to wait for a breakthrough, and many other aspects of technical analysis to confirm the signal.

Schedule "FCX" represents a classic example of the wedge in the downstream end of a long downward trend.

. Previous trend: trend down for the "FCX" began in the third quarter of 1997. It was a short-term increase in March 1998. But down trend has resumed, and the share traded on the new minima by February 1999.

. The top line of resistance: The upper resistance line was formed by four consecutive lower maximums.

. The bottom line of support: the bottom line of support was formed by four consecutive lower minimums.

. Convergence: The upper resistance line and lower support line converge as the model. Even with that, each pass through a minimum below the previous minimum, the penetration was quite low. Fineness of new minima indicates that the buyers come into the game almost immediately after reaching a new level. Sellers do not surrender, but the slope of the upper resistance line is more negative than the slope of the bottom line of support.

. Breakthrough Resistance: unlike the previous three minima, at least at the end of February was flat and the price consolidated immediately above level 9 in the next few weeks. Subsequent breakthrough occurred in March with a series of strong increases. In addition, byla positive divergence "in the price oscillator.

. Volume: after a large decline on February 24, started increasing the amount of increase (red arrow). The higher volume continued to increase and the days when the price broke the resistance trend line. Cash flow affirmed force exceeding a maximum of November and moving to the highest level since April 1998.

. After the break trend line was a short-term setback for testing the newly supported. Price consolidated in a few weeks and then increased again with increasing volume.

Forex Magazine
based on www.stockcharts.com