In contrast, a descending or falling wedge takes place within an uptrend. How to trade a Descending or Falling Wedge If the price action goes back to the wedge, after a breakout is confirmed, it immediately invalidates the pattern. On the other hand, the StopLoss orders should be placed inside the wedge, aiming for a minimum of 2:1 risk-reward ratio. In this case, you would have cashed in around 300 pips. Therefore, the extreme of the line will represent a target to establish a TakeProfit.Īs seen in this example, the price action very quickly hits the profit-taking order. You should copy the line and drag it the point where a breakout may occur. You can measure the height of the wedge by connecting the two trend lines, ideally from the point at which the wedge started. The blue line shows how to measure the profit-taking distance. Once the bears force a close below the supporting line, we may place a trade. Finally, as the price action consolidates within a wedge, a breakout occurs to the downside. At one point, the price hits a fresh low, before it manages to correct upwards.ĭuring the process of a rebound, two trend lines create a rising wedge. To demonstrate how to trade a rising wedge, let us now take a closer look at the chart below. This means that the price will move higher temporarily, represented by the higher lows and higher highs. In other words, a correction should occur. How to trade an Ascending or Rising WedgeĪs we saw above, the ascending or rising wedge should occur in a prevailing bearish trend. We will now break down the steps that you need to take to successfully identify, trade and make profits on trading these patterns. Hence, if you enter too soon, you can be stuck in a bad and losing trade. Traders often make mistakes as they draw the pattern on the chart and instead of waiting for the breakout, they pull the trigger too early and enter a trade by anticipating that a break out will occur, rather than waiting to see whether the breakout will materialize at all.Īs said earlier, there is more than a 30% chance that a breakout won’t happen at all. When it comes to trading the wedge pattern, the number one rule is to always wait for the breakout. Therefore, there is a considerable success rate, given how often this pattern can appear on Forex charts. Again, the closer the price gets to a converging point, the stronger the breakout should be.īetween 60% to 70% of the time, the wedge patterns are likely to break in the direction of the prevailing trend. Within the pullback, two trend lines connect the lower highs and lower lows as the volume decreases.īefore two lines converge, the buyers step in to end the corrective phase and resume the uptrend effectively. The overall trend should be upward with a correction to the downside. Descending or Falling wedgeĪ falling or descending wedge has the opposite structure of the rising wedge. This way, the actual pattern occurs during a downward trend, and it is seen as a continuation pattern when looking at the bigger picture. Under this scenario, the rising wedge is considered to be a bearish pattern, as it represents an upward correction in a downtrend.Īlthough the price should move upwards so we can draw trend lines, the overall trend should be to the downside. In a rising wedge, the higher lows are rising at a faster pace than the higher highs, which translates into two trend lines converging to a point where they intersect. Trend lines are drawn to connect higher lows and higher highs. A rising or ascending wedge occurs when the pair’s price moves upwards. Rising or Ascending WedgeĪs is the case with the majority of other formations, a wedge manifests in a bullish and bearish scenario. The more the price action progresses and the closer it gets to the point where two trend lines intersect, the stronger is the breakout you can expect.īefore sharing tips on how to identify and trade a wedge pattern in Forex, let’s take a look at the two main types of wedges: ascending or rising wedge and descending or falling wedge. Also, the falling volume increases the chances of a breakout in a direction opposite to the prevailing trend. A decreasing volume is a big plus if it happens, as it brings strength to the pattern. Trend lines and a breakout are mandatory for the wedge to occur. Breakout: there is a break in one of the two trend lines, signaling the end of the convergence process.Volume: ideally, the volume should be decreasing as the price action progresses although this is not a mandatory element of the formation.Trend lines: these are the two lines that connect essential data points and converge.There are three elements or conditions in a wedge pattern:
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