It is preferable to use a 4-hour time period to work on this system because most candlestick formations are not sensitive at lower time periods. These components are the rising wedge, the falling wedge, and candlestick formations. This system consists of only three components, and this is what makes it very simple and easy to implement. Hmm, it looks like the pair is revving up for a strong move.The Wedge Pattern system can be used for positional or intraday trading in the Forex market, depending on the time period used. This could mean that buyers simply paused to catch their breath and probably recruited more people to join the bull camp. In this case, the price consolidated for a bit after a strong rally. Like we mentioned earlier, when the falling wedge forms during an uptrend, it usually signals that the trend will resume later on. Let’s take a look at an example where the falling wedge serves as a continuation signal. In this case, the price rally went a few more pips beyond that target! Upon breaking above the top of the wedge, the pair made a nice move upwards that’s approximately equal to the height of the formation. Notice how the falling trend line connecting the highs is steeper than the trend line connecting the lows.
After a downtrend, the price made l ower highs and lower lows. In this example, the falling wedge serves as a reversal signal.
Unlike the rising wedge, the falling wedge is a bullish chart pattern. Just like the rising wedge, the falling wedge can either be a reversal or continuation signal.Īs a reversal signal, it is formed at a bottom of a downtrend, indicating that an uptrend would come next.Īs a continuation signal, it is formed during an uptrend, implying that the upward price action would resume. Simply put, a rising wedge leads to a downtrend, which means that it’s a bearish chart pattern! Falling Wedge What did we learn so far about these Japanese candlestick chart patterns?Ī rising wedge formed after an uptrend usually leads to a REVERSAL (downtrend) while a rising wedge formed during a downtrend typically results in a CONTINUATION (downtrend).
See how the price made a nice move down that’s the same height as the wedge? That’s why it’s called a continuation signal yo! In this case, the price broke to the downside and the downtrend continued. Only this time it acts as a bearish continuation signal.Īs you can see, the price came from a downtrend before consolidating and sketching higher highs and even higher lows.
Now let’s take a look at another example of a rising wedge formation. Just like in the other forex trading chart patterns we discussed earlier, the price movement after the breakout is approximately the same magnitude as the height of the formation. They pushed the price down to break the trend line, indicating that a downtrend may be in the cards. See how price broke down to the downside? That means there are more forex traders desperate to be short than be long! Notice how price action is forming new highs, but at a much slower pace than when price makes higher lows. In this first example, a rising wedge formed at the end of an uptrend. On the other hand, if it forms during a downtrend, it could signal a continuation of the down move.Įither way, the important thing is that, when you spot this forex trading chart pattern, you’re ready with your entry orders!