In this unit, we are going to look at the DAX Rising Wedge and DAX Falling Wedge Patterns. These patterns are normally a continuation pattern, so basically, a trend continuing in the same direction as it was moving. The previous two units were reversal patterns, one was the head and shoulders pattern and the other was the double top/bottom pattern.
DAX 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.
DAX Rising Wedge Patterns
A DAX 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 is a chart from the German DAX which shows a number of examples of a DAX rising wedge.
DAX 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
DAX 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
