This may result in anticipating when then it will end, or taking trades before the breakout thinking that a breakout will occur soon. Wedges can last a long time, narrowing into a smaller or smaller price area. If short in a falling wedge, and the price breaks upward, consider exiting. If you are long during a rising wedge, a downside breakout is a warning sign to get out. Therefore, in this case, place targets $3 or more away from the entry.Įstimate how far the price could run after a breakout by measuring the height of the pattern, but understand that if a major trend is underway, the price could run a lot further. When the price breaks out, expect at least a $3 move in the breakout price. For example, if the trendlines start at a swing high of $36 and a swing low of $33, the wedge is $3 high at the base. Rather the pattern gives us analytical insight into where the price is headed, and an entry point into what could be a large move.įollowing a breakout, the price typically moves at least the height of the wedge (measured at the base where the two trendlines start). Therefore, isn't a long-term price target for wedge. A breakout may see the price run in the breakout direction for long periods of time. As with the falling wedges, the take profit is calculated by measuring the distance (the short blue vertical.

Wedges can be significant turning points. Hence, the risk in this trade is extremely low. Bears make the first move by creating a resistance and pushing the exchange rate. When trading a falling wedge, place a stop loss just below the most recent swing low within the wedge. This chart pattern can be formed after either an uptrend or a downtrend. If trading a rising wedge, place a stop loss just above the most recent high within the wedge. Also consider exiting any long positions. Consider taking a long trade, and shy away from short trades.įor a rising wedge, consider a short trade when the price breaks below the lower trendline. This is a breakout and completes the pattern. During a falling wedge, watch for the price to move above the upper trendline. Examples of Wedgesĭraw a wedge by connecting the multiple swing highs with a trendline, and connect the swing lows with another trendline. In the case of a wedge angled upwards-a 'rising wedge'-the breakout is typically to the downside, indicating lower prices to come. For example, if a wedge is angled downward-called a 'falling wedge'-the price will often break above the top of the pattern and rally. This is why it is called a reversal pattern. When the pattern completes, and the price breaks out of wedge, it is usually in the opposite direction the wedge was pointed. Whereas triangles are formed by the price moving sideways, wedges can make significant progress either up or down. Wedges form when the waves of an asset move within a narrowing range, angled either up or down. However, it is advisable to monitor other technical analysis indicators and market news that could influence price action.Wedges are a multiple price wave reversal pattern. Exit Strategy: Traders usually exit the position once the price reaches the predetermined target. A common method to set price targets from falling wedge breakouts is the measured move technique.This involves setting appropriate position sizes and using other technical analysis indicators to validate the pattern, such as the Relative Strength Index (RSI) or Moving Average Convergence Divergence (MACD). Risk Management: It is critical to manage risk effectively when trading the rising wedge pattern.Some traders use fibonacci retracement levels as additional targets to fine tune their exit strategy. Price Target: The price target is usually determined by measuring the height of the pattern at its widest point and subtracting that value from the breakout level.This minimizes potential losses in case the pattern fails and the price reverses into an uptrend. Stop Loss: A stop loss is generally set just above the last high within the pattern.The breakout point below the lower trendline serves as the entry point. Entry Point: Once the pattern is confirmed, traders often enter a short position.A declining volume during the formation of the wedge can serve as additional confirmation. This typically comes in the form of a price breakout below the lower trendline. Confirmation: Before entering a trade, the trader or investor will wait for confirmation.

The pattern usually forms during an uptrend. A trader or investor would look for converging, upward sloping trendlines with higher highs and higher lows.

Identification: The first step is to identify the rising wedge pattern on the chart.

Measured move of a falling wedge