Wedge Pattern Reversal and Continuation

The blue arrows next to the wedges show the size of each edge and the potential of each position. The green areas on the chart show the move we catch with our positions. The red areas show the amount we are willing to cover with our stop loss order. As you can see from this 10-minute chart of GM, it is in a strong uptrend, which is tested a total of 9-times 9 (the blue line).

Just like the rising wedge, the falling wedge can either be a reversal or continuation signal. As soon as the price breaks above the resistance trend line, an entry point is signaled and the trader will take a long buying position. In both cases, we enter the market after the wedges break through their respective trend lines.

Identifying it in an uptrend

A target could again have been placed at the level where the rising wedge started from with a stop loss below the final lower low. This is the save heaven method of trading a rising wedge pattern. As you can see in the next chart, a sell order will be opened as soon as a clear impulsive close in your timeframe is given.

The second way to trade the falling wedge is to wait for the price to trade above the trend line (broken resistance), as in the first example. Then, you should place a buy order on the retest of the trend line (broken resistance now becomes support). This is measured by taking the height of the back of the wedge and by extending that distance up from the trend line breakout. Once you have identified the falling wedge, one method you can use to enter the pattern is to place a buy order (long entry) on the break of the top side of the wedge.

Wedge Strategy – When should you take profits?

Like rising wedges, the falling wedge can be one of the most difficult chart patterns to accurately recognize and trade. When lower highs and lower lows form, as in a falling wedge, the security is trending lower. The falling wedge indicates a decrease in downside momentum and alerts investors and traders to a potential trend reversal. Even though selling pressure may diminish, demand wins out only when resistance is broken. As with most patterns, it’s important to wait for a breakout and combine other aspects of technical analysis to confirm signals. Rising and falling wedges are a technical chart pattern used to predict trend continuations and trend reversals.

An increase in volume upon breakout is considered to be a confirmation of the validity of the pattern and the strength of the move. It indicates that there is strong demand for the security and that traders are actively buying, pushing the price higher. When volume is high, it can be a sign of strong conviction among traders, which can lead to a sustained price move. If the rising wedge forms after an uptrend, it’s usually a bearish reversal pattern.

Everything About the Falling Wedge Pattern in One Video

I noticed over time, that it is the most reliable variation, resulting in little to no loss trades. Because you enter the market at the top of the structure, a move to the downside happens pretty much every time, even when the overall wedge is not broken. In the next image you can see the basic textbook pattern of a rising wedge formation in an uptrend.

• Even though selling pressure may diminish, demand wins out only when resistance is broken.
• Harness past market data to forecast price direction and anticipate market moves.
• Divergence occurs when the price is moving in one direction, but the oscillator is moving in the other.
• Trading financial products carries a high risk to your capital, particularly when engaging in leveraged transactions such as CFDs.

Just like in the other forex trading chart patterns we discussed earlier, the price movement after the breakout is approximately the same magnitude as the height of the formation. A rising wedge in an up trend is usually considered a reversal pattern. This pattern is at the end of a bullish wave, by creating close price tops, shows us that the supply has intensified and there is a possibility of a trend change. Of course, nothing is certain and if the buyers are more willing and strong, this pattern may be broken in the direction of the… In the today’s post, we will discuss accurate bullish price action patterns that you can apply for trading any financial instrument.

Special characteristics – Fakeout upper trendline

Do not put your stop to close, because sometimes a minor higher high takes place. Another thing to consider when trading a wedge is a fake breakout aka Fakeout. I got a more detailed article about this pattern in my post about powerful price action signals.

There are two wedges on the chart – a red ascending wedge and a blue descending wedge. We enter these wedges with a short and a long position respectively. There are so many stocks in which this chart pattern is formed and it is difficult for traders to look at the charts of more than 500 stocks for finding this pattern. The Falling Wedge in the Uptrend indicates the continuation of an uptrend.

Is the falling wedge pattern a trend reversal pattern or continuation pattern?

Following a resistance break, a correction to test the newfound support level can sometimes occur. Usually, a rising wedge pattern is bearish, indicating that a stock that has been on the rise is on the verge of having a breakout reversal, and therefore likely to slide. Hello dear traders,
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