We study the features of Forex trading using VSA and the expanding wedge pattern.
The ability to read the market not only helps to survive in difficult situations, but also make money with familiar patterns. One of them is the expanding wedge pattern. Its effectiveness is high, but if you supplement the trading system with elements of VSA analysis, the result will be even better. The market between fights between “bulls” and “bears” does not stop, and an ordinary trader needs to determine which of them dominates in order to take the strongest side . At one time, I called this approach coyote tactics, and it works.
Trend reversals can occur very sharply, however, as a rule, they are accompanied by consolidation, which in VSA is usually called the distribution or accumulation of positions by large players. Within its framework, extremes are often rewritten, which ultimately leads to the formation of the “Expanding Wedge” pattern. It includes two lines 2-4 and 1-3, formed by successively rising highs and lowering lows. No one, neither sellers nor buyers, wants to give in, but this is a war. Someone must give up anyway. If you can determine the loser, you can confidently open a position . And here the analysis of spreads and volumes comes to the rescue.
The appearance on the charts of increased volume should attract the attention of any trader . If the movement is on a bar with a decent range within the framework of consolidation, it makes sense to assume that there is a trace of a large “bear”. Confirmation is the formation of point 4 of the “Expanding Wedge” pattern. The failure of the bulls to restore the uptrend is the first sign of their weakness . We should prepare for a breakthrough of support near point 3. Until this moment, the occurrence of an up-trust on higher volumes indicates that everything is going according to plan. U-turn is close!
A conservative approach assumes that the trader is waiting for the breakout bar to close. If it is below support, as is the case with EUR / AUD, a pending order is placed at the minimum of the bar. Its activation allows you to open a short position. Aggressive strategy involves sales in the area of points 2 and 4. The trader expects that the large “bear” he identifies will be able to complete the job and complete the formation of the “Expanding Wedge” pattern. Protective stop orders are placed in the area of the previous cluster (conservative approach) and at the level of maximum fluctuations (aggressive approach). Exit a position using a floating stop.
On the daily chart AUD / JPY, as well as in the case of EUR / AUD, a bar with a wide spread and an increased volume appeared within the trading range. Following him, an up-trust was formed. The big “bear” has shown itself, because when everyone buys, there is a great opportunity to sell . He is waiting in the wings. And we have to do the same thing – rely on a breakthrough of support near point 3. It goes at high volumes, which confirms the theory of changing the existing trend to the opposite.
The short position can be entered both on the breakthrough of support and on the retest. A stop order is set at the level of the previous local maximum, a floating stop is used to exit the short. Thus, the combination of price action and VSA analysis allows you to find yourself with large players in the same boat , which is at least equivalent to the ability to survive in the waters of such a turbulent river like Forex.