Trading Falling Wedges

  • 20 Jun 2017
  • By Trading Central
  • Topics: Energy

The wedge pattern is identified by 2 converging trend-lines that come together at an apex. What distinguishes the wedge pattern is the slant to the downside or upside. The wedge slants against the prevailing trend. A falling wedge is considered bullish and a rising wedge pattern is considered bearish. Wedges show up most often within the existing trend and are usually considered continuation patterns however the wedge can also appear at tops or bottoms signaling a trend reversal. The pattern is confirmed when prices break above the declining resistance trend-line for falling wedges and below the ascending supporting trend-line for rising wedges.

ADAPTED OPTION STRATEGY: BULL PUT SPREAD

As the upside potential is unlimited, selling premium can be an excellent strategy to create income during volatile market periods. As long as price of the futures contract remains above 40, this strategy will keep the initial credit received. Pairing a short put with a long put at a lower strike price helps reduce the margin required for an outright naked put position and defines the total risk of the strategy on the downside. The whole spread positon is entered for a net credit.

Bull Put Spread: Leg 1

Trading Symbol CL F7
Option Type PUT
Option Strategy SELL
Strike 40
Expiration Jan 2017

Bull Put Spread: Leg 2

Trading Symbol CL F7
Option Type PUT
Option Strategy BUY
Strike 34
Expiration Jan 2017

ADAPTIVE FUTURES STRATEGY

Trading Symbol6B LE M7
Strategy BUY
Entry Point1.2975 107.2
Target 109.5
Stop Loss 105
Contract Expiry June 2017

TRADING FALLING WEDGES: CL F7 APRIL 2016

ACTUAL OUTCOME

POTENTIAL GAIN PER CONTRACT

A target of 55 is determined by identifying the upper bound of the wedge pattern or significant recent high.

POTENTIAL DOWNSIDE PER CONTRACT

If the price fails to accelerate and falls below the declining trending support, the position is closed.

Falling Wedges happening now

CL Q7

ZS N7


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