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a powerful Forex combination

May 6, 2020

May 6, 2020

Patterns inside patternsDmitri Demidenko

Beginner traders’ desire to get in the boat with market professionals is understandable: big players do what they like with various assets’ quotes according to their investment tactics. Going against the stream may result in deposit losses. If a currency rate chart shows growing highs and lows, it’s bulls that dominate. If highs and lows are falling, the predominant force is bearish. Also, extremums may sometimes start jumping: the market is forming both new peaks and new troughs. Traders must know how to use such situations to their advantage.

The above mentioned pattern was first described by Thomas Bulkowski, the author of the best-selling Encyclopedia of Chart Patterns. He called it “Expanding bottom” or “Expanding top” based on where the pattern occurred - near the market low or high. In my opinion, those patterns both refer to “Expanding wedge”. I developed a work strategy applicable to this pattern of technical analysis. It implies using Fibonacci corrective levels. Let’s take an example of [EUR/USD]1. bulls’ inability to consolidate above retracement levels of 38.2% and 50% of the ultimate descending wave becomes obvious when bars have closed below them. It’s a reason for selling. Protective stop orders are placed a bit above the highs of short-term fluctuations.

Strategy of work using Expanding wedge pattern

![LiteForex: Wedge inside wedge: a powerful Forex combination][2]

 [Coyote tactics][3] should be used here: a trader needs to wait till either party - bulls or bears - wins. This process may be long. In some cases, a new child “Expanding wedge” pattern will form. Its range fits into the parent pattern’s range, and therefore we can talk of an internal configuration.  The formation of a child pattern is an important hint to where the quotes will move next.

Parent and child patterns Expanding wedge

![LiteForex: Wedge inside wedge: a powerful Forex combination][4]

If we suppose that [EUR/USD][1] drops below April’s low at 1.073, forms point 5 and finishes forming a wedge, we will be able to use the above strategy of retracement from Fibonacci levels in future. Growth of quotes above 78.6% and 88.6% is a bad sign for bears because then the pair may start rallying to 1.12. Yet, a downtrend recovery looks more likely than a trend reversal.

As for targets, I prefer setting them with the help of harmonious trading patterns. The simpler the better. The simplest pattern is AB=CD. Its levels of 113%, 127.2% and 161.8% point to targets quite accurately. [EUR/USD][1]’s quotes may continue falling to 1.056, 1.0485 and 1.03 if the combination of parent and child Expanding wedges works.

Potential of EUR/USD’s descending movement

![LiteForex: Wedge inside wedge: a powerful Forex combination][5]

This pattern is not the only configuration where a pattern fits into another pattern. The same can happen to three little Indians or 1-2-3. I think that an inside pattern’s formation is a clear signal to open a position. Still, don’t forget that trading is subject to variation. Place protective orders to better control the situation.

P.S. Did you like my article? Share it in social networks: it will be the best “thank you” :)

Ask me questions and comment below. I’ll be glad to answer your questions and give necessary explanations.

Useful links:

  • I recommend trying to trade with a reliable broker [here][6]. The system allows you to trade by yourself or copy successful traders from all across the globe.
  • Use my promo-code BLOG for getting deposit bonus 50% on LiteForex platform. Just enter this code in the appropriate field while [depositing][7] your trading account.
  • Telegram channel with high-quality analytics, Forex reviews, training articles, and other useful things for traders

Price chart of EURUSD in real time mode

![Patterns inside patterns][8]

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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  1. my.liteforex.com/trading/chart?symbol=EURUSD&returnUrl=true
  2. cdn.liteforex.com/cache/uploads/blog_post/strategies-forex/eurusd1-06-05-20.jpg?w=30&s=8e6111ea0ee0a21d8de0ad986746af61
  3. www.liteforex.com/blog/for-beginners/coyote-tactics-the-expanding-wedge-will-show-the-way/
  4. cdn.liteforex.com/cache/uploads/blog_post/strategies-forex/eurusd2-06-05-20.jpg?w=30&s=d74da13be7df06023c6c498c1243f289
  5. cdn.liteforex.com/cache/uploads/blog_post/strategies-forex/eurusd3-06-05-20.jpg?w=30&s=8d53a34a7ff36ae83900bde790a684dc
  6. my.liteforex.com/?category=for-beginners&slug=patterns-inside-patterns&openPopup=%2Fregistration%2Fpopup&utm_source=blog&utm_medium=article&utm_campaign=bonus
  7. my.liteforex.com/deposit/?category=for-beginners&slug=patterns-inside-patterns&promo_code=BLOG&utm_source=blog&utm_medium=article&utm_campaign=bonus
  8. cdn.liteforex.com/cache/uploads/blog_post/strategies-forex/liteforex-blog-wedge-06-05-20.jpg?q=75&w=1000&s=eb970f3d357fdb48c8f86b8015c84e7d