Exit the trade when price reaches the target or when the pattern does not move beyond it as expected. It occurs when the price is making lower highs and lower lows which form two. Place a stop loss below the lower trend line to minimize potential losses.Ĭ. Swing traders may trade using developing falling wedge formations before the actual breakout between the converging lines however, just as it is with rising wedge patterns, traders should aim to wait for a full pattern with an identifiable breakout before they place an order to buy. If the falling wedge appears in a downtrend, it is considered a reversal pattern. Place a buy stop order above the upper resistance line, aiming for a return to or beyond the initial point of the wedge.ī. The wedge should look like a symmetrical or slightly expanding formation. Draw a support line connecting the lower lows.Ĭ. Draw a trend line connecting the upper highs.ī. Downward wedgeĪ descending wedge is a bearish pattern that forms when price is sandwiched between a falling trend line and a horizontal or slightly downward sloping support line. ![]() Draw a resistance line connecting the upper highs.Ĭ. This makes the falling wedge a great pattern for all traders. Descending wedges can form on any chart timeframe and frequently occur during bull markets. Draw a trend line connecting the lower lows.ī. Once the falling wedge breakout is confirmed, traders should set their stop-loss order inside the wedge, as shown in the chart above. ![]() How to identify an ascending wedge and a descending wedge Rising wedgeĪn ascending wedge is a bullish pattern that forms when price is sandwiched between an uptrend line and a horizontal or slightly upward sloping resistance line. In this article, we will look at how to identify and trade this pattern. As the pattern narrows, the price action becomes more compressed, eventually leading to a breakout that can result in a significant move in the opposite direction. ![]() This pattern is formed from a series of higher highs and higher lows in an ascending wedge or lower highs and lower lows in a descending wedge. The wedge pattern is a popular chart formation that traders use to identify potential reversals in the markets.
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