How to Trade Wedge Chart Patterns in Forex

A falling wedge pattern is the bullish analogue  of the bearish rising wedge chart pattern. The falling wedge differs in its shape from the rising wedge as well as the results produced. The falling wedge will have two converging trend lines that slope downward, before an upward bullish breakout. On rare occasions, a falling wedge pattern can break down in a bearish direction.

Always use sound risk management techniques and stay informed about market developments. Using critical support and resistance on their own can be an extremely effective way to trade any broadening wedge. However, when you combine them with a measured objective, you’ll be able to place profit targets with confidence. Like every trading strategy we use here at Daily Price Action, trading broadening wedges takes patience.

1. A rising wedge formed after an uptrend usually leads to a REVERSAL (downtrend) while a rising wedge formed during a downtrend typically results in a CONTINUATION (downtrend).
2. This mirrors one of technical analysis’ most reliable warning signs, the rising wedge pattern.
3. This deceleration in bullish momentum becomes evident just before bearish traders gain dominance, typically near the point where the trendlines intersect.
4. Broadening wedge patterns indicate potential market reversals or continuations but do not guarantee specific price targets.
5. As with all broadening patterns, you should remember that the market direction can be up, down or consolidating.
6. The initial news can cause price swings that widen as the market digests new information, forming a pattern with diverging trendlines.
7. Likewise, a structure that’s developing on the daily time frame would need a daily close beyond support or resistance for confirmation.

Chart Patterns To Look For

By staying away from the lower time frames (anything below one hour), I avoid the intraday “noise” that can result from news events and other unscheduled risks. This alone was a red flag that the entry method wasn’t going to offer us a favorable enough risk to reward. As you can see, there was a key horizontal level that was just a few pips higher than the 93 pip objective.

Use short trades for rising wedges and contracting wedges when prices break below wedge support. Recognizing and trading a rising wedge pattern involves identifying converging, upward-sloping trend lines during an uptrend (for reversal) or downtrend (for continuation). The pattern is confirmed when the price breaks below the lower support trend line, often with declining volume. Traders often pay close attention to the ascending wedge pattern when it occurs in a bull market, as it signals a potential trend reversal.

Volume acts like fuel for price moves—the more fuel, the likelier you’re going to reach where you need to go.

While I occasionally trade from the 1-hour chart, I conduct 90% of my trading from rising broadening wedge pattern the 4-hour and daily time frames. Give this combination a try the next time you come across a one of these formations. I think you’ll be surprised at how often the objective matches up with a predefined level of support or resistance. Remember that we were entering as soon as it confirmed and without waiting for the retest.

1. This occurs because longer-term patterns generally reflect more substantial shifts in supply and demand.
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3. Our membership programs provide advanced pattern recognition training, real-time market analysis, and professional guidance to help you identify and trade these patterns effectively.
4. The Descending Right-Angled Broadening Wedges (DRABW) have a descending trendline below the horizontal trend line with price action in between.
5. The broadening wedge pattern is a significant chart formation in technical analysis, characterized by its widening shape due to diverging trend lines.
6. If there is a lot of “white space” in the pattern then it will be tricky to identify.

What Is the Difference Between a Rising Wedge and a Bull Flag?

Combining them with other technical indicators improves their predictive accuracy. Remember, the rising wedge pattern is not infallible, and it is crucial to use it with other technical indicators and market analysis. Continuously refine your trading strategy, manage risk effectively, and stay informed about market conditions to make informed decisions when trading the rising wedge pattern. The two converging lines will further confine the price action until there is a bearish breakdown or bullish breakout. A valid rising wedge should contain at least five touches of the two trendlines, with two touches of one trend line, and three of the other.

Entry Strategies and Stop Loss Placement

The time frame of your analysis also influences target reliability. Rising wedges that form on daily or weekly charts tend to produce more reliable targets than those on shorter time frames like five-minute or hourly charts. This occurs because longer-term patterns generally reflect more substantial shifts in supply and demand. A rising wedge is generally considered a bearish pattern because it signals that the buying momentum is slowing down. The narrowing price range and, if present, declining volume suggest the buyers are losing control, making it more likely for the price to break downward. Whether you’re a day trader, swing trader, or long-term investor, understanding how to recognize and trade the rising wedge pattern can open up new opportunities.

Its counterpart, the falling wedge, indicates a potential reversal at the end of a downtrend or a continuation during an uptrend. To identify the ascending wedge pattern, you need to look for specific trendlines on a price chart. This pattern consists of two converging trendlines that slope upwards.

The Ascending Right-Angled Broadening Wedges (ARABW) have an ascending trendline above the horizontal trendline with price action in between. Right-Angled Broadening Wedges come in two varieties, ascending and descending. The breakout occurs when price closes on the outside of the pattern, above the upper trendline or below the lower trendline. For example, price makes the third valley and touches the provisional trendline (made by the first two valleys), confirming the pattern.

Success in trading these patterns often comes from leveraging their strengths while implementing measures to mitigate their inherent weaknesses. To find the target of a rising wedge, traders can take profit when price reaches the low point where the pattern first began to form, or at various support levels on the way down. Another way to find a target is to measure from the highest peak to the lowest valley, then apply the measurement to the point of breakdown.

Setting stop-loss orders above the upper trendline helps traders manage risk from false signals. This positioning ensures that the trade is closed if the pattern does not hold. Like all of the technical patterns we trade, it’s important to wait for the market to close above or below resistance or support respectively.

Typically a continuation pattern but can sometimes trigger a reversal. The formation usually occurs after an extended move up or down where price “coils” before eventually breaking out. Furthermore, there are attributes about the broadening wedge including its measured objective that differ from a narrowing pattern, which often confuses traders. A rising wedge formed after an uptrend usually leads to a REVERSAL (downtrend) while a rising wedge formed during a downtrend typically results in a CONTINUATION (downtrend). These studies show the wide variance of the available data on day trading profitability. One thing that seems clear from the research is that most day traders lose money .

There remains debate over the long-run usefulness of technical patterns like wedges. Research suggests that wedge patterns reveal consistent indicators, though there is no single guaranteed signal for entry or exit. As with all technical trading, actual profitability depends on many factors, not just whether the signal was accurate or not. When it’s a reversal pattern, the rising wedge is one of the classic setups in technical analysis, signaling a bearish turn in the market. This pattern is generally found at the end of an uptrend and serves as a warning that the trend may soon reverse to the downside.