Education

Rising Wedge and Falling Wedge Patterns

The previous two units were reversal patterns, one was the head and shoulders pattern and the other was the double top/bottom pattern. In this unit we are going to look at the Rising Wedge and Falling Wedge Patterns. These patterns are normally a continuation pattern, so basically, a trend continuing in the same direction as it was moving.

Falling wedge patterns

This pattern happens when the market makes lower lows and lower highs with a contracting range. When you find this pattern in an uptrend it is considered a bullish pattern. This is because the market becomes narrower indicating that the correction is running out of steam and the resumption of the uptrend is about to happen.

Falling Wedge (Bullish)
Falling Wedge (Bullish)

Rising Wedge Patterns

A rising wedge pattern is a pattern which forms when the market makes higher highs and higher lows with a contracting range. When you find this pattern in a downtrend it is considered a bearish pattern. This is because the market becomes narrower during the correction, indicating that is running out of steam. This pattern would normally indicate a resumption of the downtrend.

Okay so here are a number of examples. I think the first example is actually incorrect. I believe you’d class this one as a flag rather than a wedge. I will go into that in the next unit. But you will see in each case that price continues its bearish trend.

Rising Wedge - Bearish Continuation
Rising Wedge – Bearish Continuation

Falling Wedge Trading Strategy

  • Is the price action creating low lows and lower highs with a contracting range?
  • Draw the lines
  • Calculate the high point
  • Calculate the low point
  • Subtract the high from the low – this will be the pip target
  • When the price breaks higher, use your pip target to calculate your take profit
  • Stop loss goes below the low
Falling Wedge (Bullish) - Strategy
Falling Wedge (Bullish) – Strategy

Rising Wedge Trading Strategy

  • Is the price action creating higher highs and higher lows with a contracting range?
  • Draw the lines
  • Calculate the high point
  • Calculate the low point
  • Subtract the high from the low – this will be the pip target
  • When the price breaks lower, use your pip target to calculate your take profit
  • Stop loss goes above the high
Rising Wedge - Bearish Continuation - Strategy
Rising Wedge – Bearish Continuation – Strategy

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