Wedge Patterns

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. In the example below, we will look at how to trade a rising wedge on the Japanese Yen Futures.

ADAPTED OPTION STRATEGY: BEAR CALL SPREAD

The bear call spread option trading strategy is employed when the options trader thinks that the price of the underlying asset will go down moderately in the near term. Also known as the bear call credit spread, as a credit is received upon entering the trade. Bear call spreads can be implemented by buying call options of a certain strike price and selling the same number of call options of lower strike price on the same underlying security expiring in the same month.

BEAR CALL SPREAD: Leg 1

Trading Symbol 6J H7
Option Type CALL
Option Strategy SELL
Strike 0.895
Expiration March 2017

BEAR CALL SPREAD: Leg 2

Trading Symbol 6J H7
Option Type CALL
Option Strategy BUY
Strike 0.900
Expiration Mar 2017

ADAPTIVE FUTURES STRATEGY

Trading Symbol 6J H7
Strategy SHORT
Entry Point 0.890
Target 0.875
Stop Loss 0.895
Contract Expiry March 2017

WEDGE PATTERNS: 6J H7 FEBRUARY 9TH

ACTUAL OUTCOME

POTENTIAL GAIN PER CONTRACT

A target of 0.875 is calculated by anticipating a measured move between the rising wedge patterns low and high and then projecting this range to the downside from where the Yen prices broke down. Another idea is to take full or partial profit at the next major support level set at 0.879.

POTENTIAL DOWNSIDE PER CONTRACT

Once the position is open, if prices rise above 0.895 the futures position should be closed as the strategy failed to materialize.

Wedge patterns happening in the markets now

CL K7

PL J7


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