Wedge is considered to be reversal pattern in forex. Trend captured within its boundaries is more likely to reverse. Wedges can therefore confirm trend continuation or mark its reversal, depending on the slope of its trendlines and patterns size.
About wedge forex pattern
Wedges are in many aspects similar to pennants and triangles. Difference is, that both of the trendlines (boundaries) are sloping either up or down, creating recognisable and specific structure of price within wedge.
Falling wedge forex pattern
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Falling wedge is considered to be a bullish pattern. Found in the uptrend, it signalises that uptrend continuation is more likely. Found in the bottom of downtrend, it often times mark trend reversal area. Trendlines of falling wedge are both sloping downward while converging at the same time. They signalise downtrend in smaller timeframe, with declining volatility and swing getting narrower.
Trading the falling wedge pattern
Upper boundary (resistance) will be sloping more sharply. This is also the trendline at which we expect breakout. We apply same rules as with other breakouts in forex. Heavier volume (volumes forex indicator) should be present on breakout candle to confirm breakout. Conversely, fakeouts can be traded at opposing support. Best entries can be found just at the end of the wedge, before the crossing of the trendlines.
Rising wedge forex pattern
Trend captured within boundaries of rising wedge its likely to reverse – continue downward. Therefore, wedge is continuation formation for downtrend and reversal pattern for uptrend. Both trendlines are sloping upwards and converging at the end.
Trading the rising wedge pattern
We expect to trade short at either the breakout of support (bottom trendline) or fakeout on resistance (upper trendline). Trading fakeouts found in the wedge forex pattern offers great risk reward ratio.
All trading rules as on falling wedge can be applied with same benefit also on rising wedge..
Wedges are relatively easy to spot and draw, however sloping trendline often makes it difficult to enter the position manualy at the breakout.