Wedges signal a pause in the current trend. When you encounter this formation, it signals that forex traders are still deciding where to take the pair next.
A rising wedge is formed when price consolidates between upward sloping support and resistance lines.
Here, the slope of the support line is steeper than that of the resistance.
This indicates that higher lows are being formed faster than higher highs. This leads to a wedge-like formation, which is exactly where the chart pattern gets its name from!
With prices consolidating, we know that a big splash is coming, so we can expect a breakout to either the top or bottom.
If the rising wedge forms after an uptrend, it’s usually a bearish reversal pattern.
On the other hand, if it forms during a downtrend, it could signal a continuation of the down move.
Either way, the important thing is that, when you spot this forex trading chart pattern, you’re ready with your entry orders!
Just like the rising wedge, the falling wedge can either be a reversal or continuation signal.
As a reversal signal, it is formed at a bottom of a downtrend, indicating that an uptrend would come next.
As a continuation signal, it is formed during an uptrend, implying that the upward price action would resume. Unlike the rising wedge, the falling wedge is a bullish chart pattern.