Forex Dance Patterns

Wedges


Jul.18.2013

Just like triangles and rectangles, wedges signal a pause in the current trend. The trend can either reverse or continue after the formation of a wedge. If you think about it, Wedges kind of look like a wedge shoe.

wedges-continuation-reversal-pattern

Now doesn’t this shoe look cute? In our forex party, the pairs sometimes move in a pattern that looks like the wedge of this shoe. All of us shoe-lovers should have no problem identifying this pattern, and this is yet another privilege of being a woman trader.

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A wedge is very similar to a triangle in that you can draw two converging lines from a series of peaks and valleys. The difference is that, a triangle has one rising and one falling line, but in a wedge, both lines are moving in the same direction; Both lines are either moving up, or moving down.

Falling Wedges

In a falling wedge, both lines are falling, but one of them is steeper than the other, therefore they are not parallel:

Falling Wedges - Continuation Chart Pattern Falling Wedges - Continuation Chart Pattern

As we said before, a wedge can serve as either a reversal or a continuation pattern. This is how to distinguish the two: a falling wedge is a temporary interruption of an uptrend, but it is a reversal signal for a downtrend.

 

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In other words, if the falling wedge is formed during an uptrend, chances are, that the uptrend will continue after the completion of the wedge. If the wedge is formed during a downtrend, we can expect a reversal.

In other words, after the falling wedge pattern is completed, the pair usually breaks out to the upside, regardless of the previous trend.

falling-wedge-during-uptrend

Falling Wedges During an Uptrend

Falling-Wedge-during-downtrend

Falling Wedges During a Downtrend is Followed by an Uptrend

How to Make Some Pips off a Falling Wedge

As always, this pattern is not confirmed until the resistance level is broken. Whether the falling wedge is a continuation pattern interrupting an uptrend or a reversal pattern during a downtrend, the pattern is considered bullish. Why? Because as you can see in the figures, every time the pair comes out of a falling wedge, it is likely to go up! Here are Falling Wedges in action:

falling-wedge-during-downtrend-chart

Falling Wedge Reversed a Downtrend on Pound-Dollar Daily Chart

 

 

Here is how a Forex Diva would make money off a falling wedge, after checking with other forms of the IDDA, Invest

Diva Diamond:

1. She places an entry order to buy the currency pair above the upper line of the falling wedge

2. She sets a limit to close the position at the price to which the pair has moved up the same amount as the height of the beginning of the formation.

3. She refrains from being greedy.

4. She enjoys her newly earned pips.

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