Two trend lines converge in a Wedge chart pattern. The magnitude of price fluctuation within the Wedge pattern is reducing.
Wedges indicate a break in the current trend. This shape indicates that forex traders are still contemplating where to take the pair next. A Falling Wedge is a bullish chart pattern that occurs during an upward trend, with the lines sloping downward.
A Rising Wedge is a bearish chart pattern that appears during a downward trend, with the lines sloping upward. Wedges can function as both continuation and reversal patterns.
Rising Wedge
When the price consolidates between upward sloping support and resistance lines, a rising wedge forms.
The slope of the support line is steeper than that of the resistance line in this case.
This suggests that higher lows are forming faster than higher highs. This results in a wedge-like structure, which gives rise to the chart pattern’s name!
With prices stabilizing, we know that a major splash is on the way, therefore we may anticipate a breakout to the top or bottom.
If the rising wedge appears after an uptrend, it is typically a negative reversal pattern. If it appears during a downtrend, it may indicate that the downtrend will continue. The crucial thing is that when you identify this forex trading chart pattern, you have your entry orders ready!
A rising wedge formed at the end of an uptrend in this first case.
Price activity is generating new highs at a far slower rate than it is making higher lows.
Have you noticed how the pricing has broken down to the downside? This suggests that there are more forex traders that want to be short than long! They pushed the price down, breaking the trend line, signaling that a decline is possible.
The price movement after the breakout is approximately the same magnitude as the height of the formation, just like in the other forex trading chart patterns we mentioned earlier. Now consider another example of a rising wedge formation.
This time, though, it serves as a bearish continuation signal.
As can be seen, the price began in a decline before consolidating and drawing higher highs and even higher lows.
The price broke to the downside in this scenario, and the decline proceeded. That’s why it’s referred to as a continuation signal, man!
See how the price made a beautiful downward move that was the same height as the wedge? What have we discovered thus far regarding Japanese candlestick chart patterns?
A rising wedge produced following an uptrend usually results in a REVERSAL (downtrend), whereas a rising wedge formed during a downtrend usually results in a CONTINUATION (downtrend).
Simply, a rising wedge indicates a downtrend, indicating a bearish chart pattern!
Falling Wedge
The falling wedge, like the rising wedge, can be a reversal or continuation indicator.
It is produced at the bottom of a downtrend as a reversal indicator, signaling that an uptrend will follow.
It is created during an uptrend as a continuation indicator, signaling that the upward price action will resume. The falling wedge, unlike the rising wedge, is a bullish chart pattern.
The falling wedge serves as a reversal signal in this case. Following a decline, the price formed lower highs and lower lows.
The falling trend line connecting the highs is steeper than the rising trend line connecting the lows.
When the pair broke over the top of the wedge, they made a terrific move upwards that was roughly equivalent to the height of the formation. In this situation, the price increase exceeded the target by a few pips!
Consider an example in which the falling wedge serves as a continuation indication.
As previously stated, the formation of a falling wedge during an upswing usually indicates that the trend will return later.
In this situation, the price consolidated briefly following a significant surge. This could signal that purchasers merely took a breather and recruited more people to join the bull camp.
Hmm, it appears that the duo is preparing for a significant move. What would be the outcome?
See how the price broke to the upside and continued to rise? We could have jumped in on the strong uptrend and captured some pips if we had set an entry order above the falling trend line linking the pair’s highs!
The height of the wedge formation would be a potential upside goal.
If you want to go for additional pips, you can lock in some profits at the target by closing out a piece of your trade and letting the remainder ride.
