BWFAs are commonly used drawings within technical analysis.
There are two main types of BWFs which are often used among cryptocurrency traders. These are the ascending BWF(A) and the descending BWF(D). Below we can see an example of an ascending BWF. In this article, we will be solely looking at the BWFA.
BWFs are known for their substantial volatility levels, with high risk/reward trades typically initiated when trading within them. Within BWFs there are two main sections.
The BWF construction
Sector one – Ascending resistance
The first part of the BWF is the ascending resistance. Like normal resistance lines, the BWF ascending resistance prevents the cryptocurrency from moving higher. Once the ascending resistance is hit, we typically see a bounce, forcing the cryptocurrency lower encouraging it to hit the support.
Below we can see the ascending resistance which is highlighted in orange.
BWF – ascending resistance
Section two – ascending support
Like the resistance, the support is also ascending. The reason why the formation is broadening is due to the support ascending at a lower angle than the resistance. This is what forces the lines to diverge, increasing the distance between the support and resistance.
The support prevents the cryptocurrency from moving further down and continues to hold up price as bears force the cryptocurrency lower.
Below we can see an example of ascending support, with the support holding up the green line as it pushes higher.
Real trading example
Below we can see an example of a BWFA when looking at VIDT/USD. As we can see, there is a clear BWFA, with the support and resistance both ascending, while moving away from each other. Both support and resistance have multiple verification points, with VIDT in phase (5) of the move.
When trading BWFAs, they typically move in 5 waves. The waves will gradually increase in size, with the overall volatility gradually increasing. In the picture below we can see the first five waves.
Once wave five is completed, the cryptocurrency in question is then expected to see a move down to the support created by (3). The cryptocurrency will then have a decision to make with there being two options.
The first option is for the cryptocurrency to break below the support level, and retest the ascending support line. This move will be swift. From here the cryptocurrency will likely make a fake breakout, misleading investors into believing that there will be continued upwards movement. Downwards movement will instead occur with support likely being found at (2), with substantial losses being seen by traders who placed longs at (5) and the (3) support.
The second option is that the cryptocurrency decides to retest and break above the overhead ascending resistance. From here the overhead resistance will become support and will allow even further price increases.
In conclusion, the BWFA formation is a widely used TA drawing. The drawback of the BWFA is that it can be somewhat tricky to know which part of the cycle a cryptocurrency is in. Like all TA drawings it is also not 100% accurate and should be used alongside other drawings and indicators.