Traders often make mistakes as they draw the pattern on the chart and instead of waiting for the breakout, they pull the trigger too early and enter a trade by anticipating that a break out will occur, rather than waiting to see whether the breakout will materialize at all.Īs said earlier, there is more than a 30% chance that a breakout won’t happen at all. When it comes to trading the wedge pattern, the number one rule is to always wait for the breakout. Therefore, there is a considerable success rate, given how often this pattern can appear on Forex charts. Again, the closer the price gets to a converging point, the stronger the breakout should be.īetween 60% to 70% of the time, the wedge patterns are likely to break in the direction of the prevailing trend. Within the pullback, two trend lines connect the lower highs and lower lows as the volume decreases.īefore two lines converge, the buyers step in to end the corrective phase and resume the uptrend effectively. The overall trend should be upward with a correction to the downside. Descending or Falling wedgeĪ falling or descending wedge has the opposite structure of the rising wedge. This way, the actual pattern occurs during a downward trend, and it is seen as a continuation pattern when looking at the bigger picture. Under this scenario, the rising wedge is considered to be a bearish pattern, as it represents an upward correction in a downtrend.Īlthough the price should move upwards so we can draw trend lines, the overall trend should be to the downside. In a rising wedge, the higher lows are rising at a faster pace than the higher highs, which translates into two trend lines converging to a point where they intersect. Trend lines are drawn to connect higher lows and higher highs. A rising or ascending wedge occurs when the pair’s price moves upwards. Rising or Ascending WedgeĪs is the case with the majority of other formations, a wedge manifests in a bullish and bearish scenario. The more the price action progresses and the closer it gets to the point where two trend lines intersect, the stronger is the breakout you can expect.īefore sharing tips on how to identify and trade a wedge pattern in Forex, let’s take a look at the two main types of wedges: ascending or rising wedge and descending or falling wedge. Also, the falling volume increases the chances of a breakout in a direction opposite to the prevailing trend. A decreasing volume is a big plus if it happens, as it brings strength to the pattern. Trend lines and a breakout are mandatory for the wedge to occur. Breakout: there is a break in one of the two trend lines, signaling the end of the convergence process.Volume: ideally, the volume should be decreasing as the price action progresses although this is not a mandatory element of the formation.
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