Wedges
Wedges can be bullish or bearish, continuation or reversal patterns!
Wedges are similar to, but more dynamic than, triangles. Like all patterns there must be a trend into the pattern, the price then consolidates and coils between support and resistance. How these levels are aligned determines the type of wedge. It is as if a negotiation is going on and the two parties are slowing getting closer to a deal. No matter what type of wedge it is, it can be a continuation or reversal pattern – the confirmation is vital if you want to trade this pattern.
Rising wedges
Rising wedges are bearish and the preceding trend determines whether its a reversal or continuation pattern. In rising wedges support and resistance levels both slope upwards, the resistance isn’t as steep as support so the price comes together. Confirmation of the pattern comes when the price breaks below support.
Here is a rising wedge in EUR/USD.
Falling wedges
These are bullish patterns, with the preceding trend determining whether its a reversal or continuation pattern. Prices come together between falling support and resistance levels. The confirmation comes when the resistance line is broken.
Trading wedges
These can be harder to trade than other price patterns because while wedges form other technical indicators, like moving averages, tend not to suggest trading opportunities. You have to go a little out on a limb, which personally makes me a little uncomfortable.
Unfortunately, with wedges, there is no established method for setting take profits and stop loses. We need to lean on other analysis techniques, like support and resistance analysis to set these.
- Wedges are basically dynamic triangles. Support and resistance coil together which places a time limit on the pattern.
- Wedges can be either rising or falling, reversal or continuation pattern.
- Always remember confirmation is key, the pattern isn’t confirmed until the support or resistance level is broken.
- These patterns are difficult to trade and other indicators should be used to set take profit levels and stop losses.