I just reviewed my notes on a pattern that many traders ignore but that really works: the descending wedge. I've been seeing this setup quite frequently over the past few months, and I think it's worth diving deeper into how to take advantage of it.

Here's how it works: when you see two trendlines that are trending downward but are narrowing, that's a descending wedge. The upper line slopes down more sharply than the lower line, which means selling pressure is waning. This is a signal that a bullish move may be coming.

The first thing I do is wait for the price to break above that upper resistance. I don't enter earlier because false breakouts are deadly. I've learned that the hard way. I need to see a confirmed candle close and, most importantly, increasing volume. Without volume, the breakout is suspicious.

Once I confirm the breakout, I measure the height of the wedge—the vertical distance between the two lines at the start of the pattern—and project that upward from the breakout point. That becomes my profit target. It’s mathematical and works better than guessing.

For the stop-loss, I place it just below the lowest point of the wedge. Some prefer to be more conservative and set it below the breakout candle, but I prefer to give a little more margin.

Now, there's a trick I sometimes use: after the price breaks out, it often retests that resistance line as support. This is called a re-test. If I see the price respecting that line during the re-test, it's a golden opportunity to enter with a better risk-reward ratio. Descending wedge trading doesn't always mean entering at the initial breakout; sometimes the best entry is on the re-test.

Indicators help me validate. I look for bullish divergence on the RSI—lower prices but higher RSI—or a bullish crossover on the MACD near the breakout. Decreasing volume during the pattern formation followed by a spike at the breakout is almost confirmation that this will work.

What I've seen fail is entering too early without waiting for confirmation. Also, ignoring volume or seeing converging lines that aren't truly a valid pattern. Not all wedges are the same, and you need to be selective.

Regarding strategy, I can do pure breakout trading—waiting for the break and entering—or be more aggressive and buy within the pattern, anticipating the move—higher risk but better reward if it works. I only do the latter when I'm very confident in the setup.

What I’ve learned is that patience is key here. Discipline to wait for confirmation, respect stop-losses, and not forcing trades is what separates winners from losers. The descending wedge is a powerful pattern when done correctly, but it requires precision.