Newbie tips for trade strategy with the wedge pattern

The Wedge pattern (candlestick pattern) is a popular technical analysis tool. It often appears in charts of financial markets. This model helps investors make accurate price forecasts. Join Forex Trading to learn some characteristics and effective trading methods of the wedge model!

What are the concepts and characteristics of the Wedge pattern?

Wedge pattern, also known as Wedge Pattern. This is a technical analysis tool that often appears during an uptrend or downtrend. It is a signal indicating a reversal or continuation of the previous trend in the future.

The wedge model is composed of the following elements:

• Two trend lines: Support and resistance lines have the same slope direction, converge, and form a wedge-like shape.
• Prices move in a “wedge” with an increasingly narrow fluctuation range. At some point, when the price breaks out of one edge of the wedge, an upward or downward trend along that edge will be determined.
• Depending on the bullish or bearish trend, traders can predict the future direction of the price.

  

See more: Analyze & forecast trend effective candlestick pattern

Some popular wedge models today

Right below Forex Trading will highlight some popular wedge patterns today.

Rising Wedge model – Rising Wedge model

The rising Wedge pattern is formed by two edges. Those are two rising trend lines, sloping up and converging at an upward diagonal point on the right side. The characteristics of this Rising Wedge pattern include:

• Make sure the price touches each trendline at least twice, for a total of at least 4 crossover points.
• Can appear in any uptrend or downtrend.
• The model provides signals based on the previous trend

  

Regardless of the trend, the rising wedge pattern creates a bearish signal. This is the optimal time for traders to consider entering a Sell order. 

Falling Wedge model – Falling Wedge model

The Falling Wedge pattern appears when its two sides are two downtrend lines, sloping down. It converges at a diagonal point down the right side of the pattern. Characteristics of the Falling Wedge pattern include:

• Make sure the price touches each trendline at least twice, with a minimum of 4 contact points.
• The Falling Wedge pattern can appear in an uptrend or downtrend.
• The model provides signals based on the previous trend.

  

The downward wedge creates a bullish signal when the price breaks out of resistance levels and continues to move up. Therefore, this is a reasonable time for traders to consider entering a Buy order.

Broadening Wedge pattern – Broadening Wedge pattern

Expanding wedge model, also known as Broadening Wedge. This is a special form of the Wedge pattern, the structure of the model includes:

• The shape resembles a speaker, with amplitude extending from left to right.
• The two trendlines go in opposite directions. An upward-sloping line and a downward-sloping line, connect the tops and bottoms of the pattern.
• Make sure the price must touch each trendline at least twice.

  

This pattern can appear in both uptrends and downtrends. It gives different signals in each case. In the forex market, the broadening pattern often appears at the end of an uptrend.

The meaning of each Wedge pattern in the forex market

This pattern often appears in the forex trading market. Below is the meaning of each model that you should know.

Meaning when the model increases

• In an uptrend: Provides a reversal signal from an uptrend to a downtrend. This model shows the strength of the sellers.
• In a downtrend: Provides a signal for a continuation of the previous downtrend. Sellers are in the accumulation and resting phase after a price drop.

Meaning when the model is bearish

• In an uptrend: Announces the continuation of the uptrend. This is the time for buyers to pause and accumulate before continuing to push prices up according to the current trend.
• In a downtrend: Provides a reversal signal from a downtrend to an uptrend. This model reflects the weakness of the selling side. 

Meaning when the model expands

• Upward expanding wedge: The Wedge pattern consists of two trendlines pointing up, with the following peak and trough higher than the previous peak and trough. The slope of the bottom will be lower than the slope of the peaks, showing the weakness of the buyers.
• Wedge expanding downward: This pattern includes two trendlines pointing down, creating a lower peak and trough than the previous peak and trough. The slope of the peaks will be lower than the slope of the bottoms, indicating a gradual weakening of the sellers.

  

See more: Broker IC Markets and interesting revelations

Effective trading strategies with the wedge pattern

The most important thing in trading strategies with the wedge model is determining two Trendlines. Investors simply need to connect peaks with peaks and troughs to confirm the shape of the pattern.

Trade with the Wedge pattern when trend reversal occurs

Trend reversal signals are confirmed when the rising wedge pattern appears in an uptrend and the falling wedge pattern appears in a downtrend. Investors will confirm and open orders after the price breaks out of the pattern and has performed a retest.

• Entry point: Some investors will choose the entry point right at the breakout price point of the model. To ensure safety against noisy signals, the entry point should be placed in an area where the price has been retested.
• Take Profit Target: The take profit target can be set at the old bottom of the rising wedge and the old top of the falling wedge. Capitals are levels where the price can reverse after breaking out of the pattern.
• Stop Loss: Stop loss can be set according to the R: R (Risk-to-Reward) ratio. That is the ratio between the level of risk and the level of profit potential.

Trade with forex patterns when continuing the trend

Trend continuation trading signals are confirmed when an upward Wedge pattern appears in a downtrend and a falling wedge in an uptrend. Investors will use retest levels instead of breakouts to ensure safety.

• Entry point: The entry point will be placed at the retest price level after the price has successfully broken out of the pattern. It can be either bullish or bearish depending on the shape of the Wedge pattern.
• Take Profit Target: The take profit target will be set according to the R: R (Risk-to-Reward) ratio.
• Stop Loss: Investors are recommended to use a trailing stop at the R: R ratio to ensure maximum profit.

To trade smoothly, go beyond this forex model. You can also learn more about the bunting pattern. It is a model that is loved and used by many investors.

Note when trading with this forex model

To trade successfully with this forex model, here are a few important notes:

• It is recommended to enter orders when receiving confirmation signals from candlesticks.
• Flexibly combine other technical tools during the trading process to increase signal accuracy.
• In both patterns, although a downtrend is formed, the bearish reversal pattern will be weaker than the continued downtrend.
• The bearish pattern that continues the upward momentum will be stronger and can go further than the bearish reversal pattern.
• During the trading process, when the price touches fewer points, the possibility of a break or a fake model is higher.
• In the case of scalping, it is not necessary to comply with the 4-touch minimum rule. You only need the price to touch at least 3 points to be able to make a transaction.

Epilogue

The above article shared information about the Wedge pattern one of the popular price models in the Forex market, highly appreciated and applicable. Understanding the meaning and how to trade with this model will help increase your winning rate. Please refer to more Forex Trading articles to learn how to trade with the Wedge pattern!

Frequently asked questions

Can wedge patterns be classified as short-term or long-term patterns?

This pattern is often considered a long-term pattern due to its formation period lasting from 3 weeks to 4.5 months.

Are the trend lines in this pattern always in the same direction?

In a Wedge pattern, trend lines follow the “all up, same down” rule, meaning they move in the same direction.

Is the wedge pattern a continuation pattern or a reversal pattern?

The wedge pattern can be considered a continuation pattern or a reversal pattern, depending on the specific case.