Volume keeps on diminishing and trading activity slows down due to narrowing prices. There comes the breaking point, and trading activity after the breakout differs. Once prices move out of the specific boundary lines of a falling wedge, they are more likely to move sideways and saucer-out before they resume the basic trend. Falling wedge pattern is a reversal chart pattern that changes bearish trend into bullish trend. The Falling Wedge can signify both a reversal and a continuation pattern. In the context of a reversal pattern, it suggests an upcoming reversal of a preceding downtrend, marking the final low.

Nonetheless, regardless of the market condition, you always need to find the same pattern formation and follow the same rules when using this pattern to predict future price movements. Wedges can be Rising Wedges or Falling wedges depending upon the trend in which they are formed. First, the price of an asset needs to be in a strong upward trend.

Wedge Pattern: Benefits..

Trend lines are the best way to spot the narrowing of the channel, which is the first key sign that the reversal may be forming. The first example shows a rising wedge that follows a strong uptrend and develops over an approximately three-month period. The true breakout is a bearish reversal, as expected for rising wedges, and comes on high trading volume.

These resistance points may become areas of support in its next move up. To design your wedge trading strategy, you’ll need to decide when to open your position, when to take profit and when to cut your losses. Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite.

Want to know which markets just printed a Falling Wedge pattern?

Wedge Patterns are a type of chart pattern that is formed by converging two trend lines. Wedge patterns can indicate both continuation of the trend as well as reversal. Rising Wedge- On the left upper side of the chart, you can see a rising wedge. Rising wedges usually form during an uptrend and it is denoted by the formation higher highs(HHs) and Higher…

This pattern has a rising or falling slant pointing in the same direction. It differs from the triangle in the sense that both boundary lines either slope up or down. Price breaking out point creates another difference from the triangle. Falling and rising wedges are a small part of intermediate or major trend. As they are reserved for minor trends, they are not considered to be major patterns.

Identifying the falling wedge pattern in an uptrend

So by placing a stop loss at the previous market high, you can close the trade before further losses are incurred. Like head and shoulders, triangles and flags, wedges often lead to breakouts. In the case of rising wedges, this breakout is usually bearish. The bullish confirmation of a Falling Wedge pattern is realized when the resistance line is convincingly broken, often accompanied by increased trading volume. It’s usually prudent to wait for a break above the previous reaction high for further confirmation.

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Wedge Strategy – Where should you place your stop loss?

For example, when you have an ascending wedge, the signal line is the lower level of the figure. When you see the price of the equity breaking the wedge’s lower level, you should go short. At the same time, when you get a descending wedge, you should enter the market whenever the price breaks the upper level of the formation. Note in these cases, the falling and the rising wedge patterns have a reversal characteristic. This is because in both cases the formations are in the direction of the trend, representing moves on their last leg. For ascending wedges, for instance, traders will mostly be mindful of a move above a former support point.

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Trading with Rising Wedge Pattern

However, rising wedges can occasionally form in the middle of a strong bearish trend, in which case they are running counter to the main price movement. In this case, the bearish movement at the end of the rising wedge is a continuation of the main downward trend. The best place to practice any strategy is in a market simulator. We suggest flipping through as many charts of the more liquid names in the market.