A descending wedge is used as a reversal or continuation pattern depending on its location on the price chart. Next, you will learn how to identify this pattern and use it to find good conditions for buying.

How to Find a Descending Wedge in a Downtrend

A descending wedge in a downtrend is considered a reversal pattern that occurs when the price reaches lower lows and highs. The price is between lines that are constantly converging during the formation of the pattern. Often, a descending wedge occurs before a reversal to the upside. Therefore, buying conditions appear.

The chart below shows a descending wedge in a downtrend.

How to Find a Descending Wedge in an Uptrend

A descending wedge that occurs in an uptrend is considered a continuation pattern that arises when the market is contracting. This means that the uptrend continues, and there are good conditions for buying.

The chart below shows a descending wedge in an uptrend.

Trading with a Descending Wedge: Method One

When identifying a descending wedge, one option is to enter the market with it to place a long position (buy order) when the upper side of the wedge is breached. To avoid false breakouts, wait for the candle to close above the upper trendline before entering the market.

The chart below shows the buy order and the area where the upper trendline of the wedge is breached.

Blue 1 – is a long position. Black 2 – is the area where the price breaks through the upper trendline of the wedge.

The chart below shows where to set the stop-loss – below the lower side of the descending wedge.

Blue 1 – is a long position. Black 2 – is the area where the price breaks through the upper trendline of the wedge. Red 2 – is the stop-loss below the lower side of the wedge.

The chart below shows the profit level. To measure it, you need to postpone the height of the backside of the wedge downwards from the breakout of the trendline.

Blue 1 – is a long position. Black 2 – is the area where the price breaks through the upper trendline of the wedge. Red 2 – is the stop-loss below the lower side of the wedge. Black 3 – is the backside of the wedge. Black 4 – is the distance between the entry point and the profit level. Green 3 – is the profit level.

Trading with a Descending Wedge: Method Two

The second method involves waiting for the price to rise above the breakout resistance (trend line) similar to the first method. Then you need to place a buy order at the moment of rechecking the trend line (the breached resistance level turns into support).

The chart below demonstrates where to place the buy order.

Black 1 – is the moment when the price receives support on the upper side of the descending wedge. Blue 1 – is a long position.

The chart below shows the placement of the stop-loss under the new support line.

Black 1 – is the moment when the price receives support on the upper side of the descending wedge. Blue 1 – is a long position. Red 2 – is the stop-loss.

The chart below shows the profit level. Following the example of the first method, to measure it, you need to postpone the height of the backside of the wedge downwards from the breakout of the trendline.

Black 1 – is the moment when the price receives support on the upper side of the descending wedge. Black 2 – is the backside of the wedge. Black 3 – is the distance between the entry point and the profit level. Blue 1 – is a long position. Red 2 – is the stop-loss. Green 3 – is the profit level.