So far in the past week there have been no fewer than two descending wedge patterns in the ETH/USD chart and they have both been confirmed with a solid breakout and both reached their implied bullish targets.
Now, as of about 1:00 a.m. EDT, it appears that yet another bullish descending wedge pattern is developing.
That sort of begs the question - what IS a bull descending wedge and WHY do they tend to result in a move UP and OUT of these patterns?
Two things to keep in mind. Charts are not just a record of trades. They are a record of human BEHAVIOR and every data point on a chart is there because, someone, somewhere, made a choice to either buy or sell at a particular level. There are only two motivating forces in the financial markets - fear of loss and desire for gain. These two forces of emotion are intrinsically woven into the fabric of every move made in a stock, ETF or currency trade. Even if the actual mechanics of the trade is driven by software, the software was programmed by someone who made a decision as to where and when trades are to take place and I would argue that the process of creating an algorithm is as much married to fear and hope as is a trade delivered by the Pony Express.
Descending wedges have their shape because the ENERGY that first started the downward pattern slowly dissipates over time and, as a result, the default action is for buying to eventually overcome selling. This happens in a majority of these patterns. That is also why descending wedges tend to form after strong upwards moves. The initial reaction to the bullish thrust is the strongest, and each move in the pattern gets smaller and smaller until there is very little selling interest left and the bulls just sort of naturally take over the show and create an upwards move.
Let's see if this latest wedge (outlined in green) plays out as nicely as the last two did.
This chart and analysis is brought to you by 0x521b495fc2D065787F21c5a2d6560e8dD141a4f4
Now, as of about 1:00 a.m. EDT, it appears that yet another bullish descending wedge pattern is developing.
That sort of begs the question - what IS a bull descending wedge and WHY do they tend to result in a move UP and OUT of these patterns?
Two things to keep in mind. Charts are not just a record of trades. They are a record of human BEHAVIOR and every data point on a chart is there because, someone, somewhere, made a choice to either buy or sell at a particular level. There are only two motivating forces in the financial markets - fear of loss and desire for gain. These two forces of emotion are intrinsically woven into the fabric of every move made in a stock, ETF or currency trade. Even if the actual mechanics of the trade is driven by software, the software was programmed by someone who made a decision as to where and when trades are to take place and I would argue that the process of creating an algorithm is as much married to fear and hope as is a trade delivered by the Pony Express.
Descending wedges have their shape because the ENERGY that first started the downward pattern slowly dissipates over time and, as a result, the default action is for buying to eventually overcome selling. This happens in a majority of these patterns. That is also why descending wedges tend to form after strong upwards moves. The initial reaction to the bullish thrust is the strongest, and each move in the pattern gets smaller and smaller until there is very little selling interest left and the bulls just sort of naturally take over the show and create an upwards move.
Let's see if this latest wedge (outlined in green) plays out as nicely as the last two did.
This chart and analysis is brought to you by 0x521b495fc2D065787F21c5a2d6560e8dD141a4f4