![]() When the price breaks the upper trend line, the security is expected to reverse and trend higher. In a bullish trend what seems to be a Rising Wedge may actually be a Flag or a Pennant (stepbrother of a wedge) requiring about 4 weeks to complete. Although many newbie traders confuse wedges with triangles, rising and falling wedge patterns are easily distinguishable from other chart patterns. Thus, a wedge on the chart could have continuation or reversal characteristics depending on the trend direction and wedge type. The can either appear as a bullish wedge or bearish wedge depending on the context. It forms when an asset’s price drops, but the range of price movements starts to get narrower. Also known as the descending wedge, the falling wedge technical analysis chart pattern is a bullish formation that can occur in trend continuation or trend reversal scenarios. Much like our discussion above on ascending wedges, this descending wedge pattern should display the inverse characteristics of volume and price action. Opposite to rising wedge patterns, falling wedge patterns are typically a bullish wedge, which implies the price is likely to break through the upper line of the formation. For this purpose, you can either use readings from a Momentum Indicator directly or monitor the Divergence on the price chart using it. These readings can be leveraged to confirm that the pattern that you are looking at is in fact a Wedge Pattern. Therefore, when identifying a potential Wedge on the price chart of a security, readings from a Momentum Indicator can come in really handy. The Wedge Patterns are characterized by the slowness in trading activity and the loss in momentum during their convergence phase. Price action then start to trade sideways in more of a consolidation pattern before reversing sharply higher. The USD/CHF chart below presents such a case, with the market continuing its downward trajectory by making new lows. AUD/USD Analysis: Price at Important Resistance Block Therefore, in comparison to many other price chart types, identifying the upper and the lower trendlines, and hence the Wedges, becomes much simpler when leveraging a Candlestick Chart. This is where Candlestick Patterns, more specifically – Reversal Candlestick Patterns, can be leveraged to improve the reliability of your trade entries. They are great at providing a general idea that a reversal may potentially occur, but to identify and to confirm exact reversal zones, you will need to rely on other complementary tools. Wedges are counted among the most popular and widely traded reversal patterns. A Rising Wedge is known to breakout in the bearish direction, whereas the price breaks into an uptrend after a Falling Wedge. With a correctly identified Rising or Falling Wedge Pattern, you can easily determine the direction of an upcoming price movement or breakout. ![]() The consolidation part ends when the price action bursts through the upper trend line, or wedge’s resistance. The falling wedge pattern occurs when the asset’s price is moving in an overall bullish trend before the price action corrects lower. Notice that the two falling wedge patterns on the image develop after a price increase and they play the role of trend correction.
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