Rising Wedge and Falling Wedge Chart Patterns: Trend Reversal Signals and Profitable Trading Strategies

 

Rising and Falling Wedges

The Rising Wedge and Falling Wedge chart patterns can be classified as both Continuation Patterns and Reversal Patterns.

GBP/CAD currency pair. Rising Wedge in uptrend

AUD/USD currency pair.Rising Wedge in uptrend

Rising Wedge

Rising wedge chart pattern usually appears in a trend where prices are going up (example: look at the pictures: GBP/CAD and AUD/USD currency pairs) Sometimes there is a time for corrections in a downtrend (example: CAD/CHF currency pair) At this time traders are considering the possibility of a reversal signal. In the market, prices weaken in an uptrend and the formation of a chart pattern indicates a downward trend in prices. When the formation is completed, it is expected that the prices will break down and continue to decrease.

CAD/CHF currency pair.Rising Wedge in downtrend

The rising wedge chart pattern can offer traders the opportunity to open sell positions or close existing long positions. When certain conditions are met, the trader can open a sell position as the prices break the lower limit of the pattern. The sine qua non of the trader at this time is to control the risk by placing a stop-loss order.

The rising wedge pattern is considered a reversal signal, but it is very important to wait for prices to complete the pattern and break down. If the trader is holding a long position in an uptrend and a rising wedge formation appears, he may consider closing the positions. Because this graphic pattern indicates that the trend is weakening and prices may decrease.

As in every formation, it is risky to trade based on the rising wedge formation alone. It is more reliable to use it in conjunction with other technical indicators, market conditions, momentum oscillators and other patterns that confirm price movements to see if the pattern is confirmed.

 

Falling Wedge

NZD/JPY currency pair. Falling Wedge in downtrend

 The falling wedge chart pattern occurs in a trend where prices are usually falling and is interpreted as a reversal signal. (example: NZD/JPY currency pair) Sometimes there is a time for corrections in an uptrend. (example: CAD/JPY currency pair) The falling wedge chart pattern shows that prices weaken in the downtrend and create a reversal signal. The formation of this formation usually indicates an upward rise in prices. When the formation is completed, it is expected that the prices will break upwards and continue to rise.

CAD/JPY currency pair. Falling Wedge in uptrend

 Hurrying can be risky for the trader. After the formation is complete, it is very important to wait for the prices to break upwards. As the prices break the upper limit of the pattern, the trader can open a buy position. If the trader is short on a downtrend and a falling wedge formation appears, he may consider closing the positions. Because this formation shows that the trend is weakening and prices may increase.

The trader's trading based on the falling wedge formation may cause financial loss. It is more reliable to apply additional indicators, price movements and other analysis methods to see if the avoidance pattern is confirmed. It is always important for the trader to control the risk by placing a stop-loss order.