Wedge shape

The wedge-shaped shape signals a pause in the current trend. When faced with this information, it means that traders are still hesitant about which direction to push the exchange rate in.

Rising Wedge

When prices are maintained within the range of upward resistance and support lines, an upward wedge shape is formed.

Here, the degree of inclination of the support line is greater than that of the resistance line. This means that the formation speed of continuously rising low points is faster than that of continuously rising high points.

With the consolidation of prices, we know that a big market is about to come, so we can anticipate that there is a possibility of upward or downward breakouts in the market.

If an upward wedge pattern forms after an upward trend, it is usually a reversal bearish pattern.

On the other hand, if it forms in a downward trend, it may indicate the continuation of the downward trend.

Anyway, what's important is that once you identify the wedge-shaped shape, you can prepare to set up your own stop loss order(stop entry order)。

In the first example, the upward wedge shape forms at the end of the upward trend. Pay attention to how price movements form new highs, where the formation speed of new highs is slower than that of continuously rising lows.

Do you see how the price subsequently fell below the support line and went down? This means that more traders are constantly short selling.

They have pushed prices below the upward trend line, which means a downward trend may be about to begin.

As we discussed in previous courses, the magnitude of price decline after a breakout is approximately equal to the height of the pattern.

Now, let's take another example about the rising wedge. However, this time it plays the role of a sustained downward signal.

As shown in the figure, the price experienced a period of decline before entering a consolidation period, during which both the high and low points of the price continued to rise.

In this case, the price fell below the rebound upward trend line and continued the previous decline. This is also why it is called a sustained signal.

Pay attention to how the price has emerged from a beautiful downward trend, and the magnitude and pattern of the decline are highly consistent.

So far, what have we learned?

An upward wedge is formed in the later stage of an upward trend, which may lead to a reversal of price trends, while an upward wedge is formed during a downward trend, which is usually a signal of sustained price decline.

Simply put, an upward wedge leads to a downward trend, which means that this pattern is bearish.

falling wedge

Like an ascending wedge, a descending wedge can also emit a reversal signal or a sustained signal.

When a reversal signal appears, it appears at the bottom of the downward trend, indicating that a new round of upward trend is about to begin.

When it appears as a sustained signal, it forms during an upward trend, indicating that prices will restart the upward trend. Unlike an upward wedge, a downward wedge is a bullish form.

In this example, the descending wedge plays the role of a reversal signal. After experiencing a round of decline, prices have shown a continuous downward trend with high and low points.

Note that the slope of the downward trend line connecting high points is steeper than that of the trend line connecting low points.

After breaking through the resistance at the top of the wedge, the exchange rate showed a perfect upward trend, with an increase approximately equal to the height of the wedge shape. In this case, the exchange rate further rises after reaching its upward target.

Let's take another look at an example where a descending wedge plays a sustained signal. As we mentioned earlier, when a downward wedge shape is formed during the rise of the exchange rate, it usually implies that the upward trend will soon reopen.

In this case, the price has entered a consolidation pattern after experiencing a strong upward trend. This may mean that the buyer is just taking a breath and may gather more people to join the long team.

We may have already captured the upward trend in this round of scenarios. The perfect upward target will be equivalent to the height of the wedge.

If you plan to pursue more profits, you can choose to lock in some profits after the price reaches the target level and continue to hold the remaining position.