What are Falling and Rising Wedges?
When you are trading currency pairs in the forex market, it is essential to know when the market can possibly reverse. The Falling and Rising Wedges pattern help identify market reversal signals and accurate market entry and exit points. The wedges alert you against any significant market highs and lows, enabling you to mitigate risks and maximise profits. Let us understand all about falling and rising wedges in depth.
What is a Falling Wedge Pattern?
A Falling Wedge Pattern is formed when two trendlines meet due to the continuously falling prices of two currency pairs. (A trendline is formed by connecting either two or more highs or two or more lows in a currency pair’s price charts.) The convergence between these two lines sends traders a signal of a market reversal during a downtrend. The prices also start to increase as more and more traders enter the market.
What is a Rising Wedge Pattern?
A Rising Wedge Pattern is formed when two trendlines meet due to the continuously rising prices of two currency pairs. The convergence sends traders a signal of a market reversal during an uptrend, and the prices start to decrease as more and more traders start shorting their trades and exit the market.
How to identify a falling wedge pattern?
The falling or declining wedge pattern indicates a market uptrend reversal. It occurs during falling markets and reverses into increasing prices thereafter. Here is how you can identify the falling wedge pattern in five easy steps –
- Identify the existing trend in the market to be a downtrend.
- Connect the lower low and lower high price points to get two downward sloping lines that converge during a downtrend.
- Calculate the divergence between the current trading price of the currency pairs and the trendlines to see how much the market has deviated from the price highs and lows.
- Confirm the downtrend when the currency pair price moves below the support level and finally reveres and reverses into an uptrend.
- Long the trade at this point to benefit from the rising markets.
How to identify a rising wedge pattern?
The rising or expanding wedge chart pattern indicates a market downtrend reversal. It occurs during rising markets and reverses into falling prices thereafter. Here is how you can identify the rising wedge pattern in five easy steps –
- Identify the existing trend in the market to be an uptrend.
- Connect the higher high and higher low price points to get two upward sloping lines that converge during an uptrend.
- Calculate the divergence between the current trading price of the currency pairs and the trendlines to see how much the market has deviated from the price highs and lows.
- Confirm the uptrend when the currency pair price moves above the resistance level and finally reverses into a downtrend.
- Short the trade at this point to benefit from the falling markets.
Trading Falling and Rising Wedges
To trade the falling wedge, place the buy order immediately at the point where the trendline ends to enter the market and benefit from the increasing prices later on. Placing a buy/long order here is essential because the trend indicates an increase in the prices in the coming trading days reaping traders significant profits.
- The stop-loss order can be placed below the falling wedge’s bottom part to limit losses.
- The take profit order can be placed at the topmost part of the falling wedge’s trendlines to lock in substantial profits.
After identifying a rising wedge, place a shorting order immediately at the trendline’s end to exit the market and lock in profits. This is because the trend indicates a decrease in the prices in the coming forex trading days, and placing a sell order at the top of the wedge minimises losses.
- The stop-loss order can be placed right above the rising wedge’s top part to limit losses.
- The take profit order can be placed at the bottom of the lower trendline to lock in substantial profits.
What are the top trends that Falling and Rising Wedges can confirm
Market trend continuation
When a falling wedge appears in a market uptrend, and a rising wedge appears in a market downtrend, they confirm a continuation pattern, signalling that decreasing prices will continue falling and increasing prices will continue rising.
- The continuation trend in a falling wedge appears whenever the currency pair prices make lower highs and lower lows compared to their historical price range, enabling traders to open new buy positions and average out their previous ones.
- The continuation trend in a rising wedge appears whenever the currency pair prices make higher highs and higher lows compared to their historical price range, enabling traders to either short the trade or hold it and maximise profits.
- Traders can place a stop-loss order below the lowest currency pair price in the falling wedge or above the highest price in the rising wedge to minimise losses.
- The profit target can be the difference between the height of both the trendlines.
Market trend reversal
When the falling market wedge appears in a market downtrend, and the rising wedge appears in a market uptrend, they confirm a reversal pattern, signalling the decreasing prices to now increase and increasing prices to now decrease.
- The market reversal trend in a falling wedge appears whenever the currency pair prices make higher lows and higher highs compared to their historical price range, enabling traders to open new buy positions to benefit from the rising prices.
- The continuation trend in a rising wedge appears whenever the currency pair prices make lower highs and lower lows, compared to their historical price range, enabling traders to short the trade to minimise losses.
- Traders can place a stop-loss order at the end of the wedge, right before the market reversal, to minimise losses.
- The profit target can be placed at a previous resistance level.
How to trade using the Falling and Rising wedges?
1. Open your trade position
Once you have identified a Falling or Rising wedge in the forex chart pattern, you must confirm the trend direction through a breakout or breakdown before opening a new trade. The breakout occurs either above the support trendline (when there is a rising wedge) or above the resistance trendline (when there is a falling wedge). However, a breakdown occurs either below the support trendline of a rising wedge or below the resistance trendline of a falling wedge. Breakouts signal traders to open new trade positions, whereas breakdowns suggest they hold onto the trade for a while.
- The support trendline in a rising wedge is the point where the decreasing prices stop falling, reverse and start rising.
- The resistance trendline in a falling wedge is the point where the increasing prices stop rising, reverse and start falling.
2. Identify the take profit order
Since falling and rising wedges provide you with market reversal trends in downtrends and uptrends, respectively, it signals traders to place their take profit orders equal to the distance between the wedge’s two trendline’s highest high (support) and lowest low (resistance) price. For example, if the support price of the rising or falling wedge is $100 and the resistance price is $50, the take profit can be placed at $50 after the price breakout.
3. Place the stop-loss order
Stop-loss orders in a rising or falling wedge pattern can be placed either some price points above the last support level or below the resistance level. The trade is closed at these points to ensure that losses are minimised, and profits are maximised if the support level fails to turn into a resistance level and vice versa.
What does a descending wedge mean?
The descending wedge pattern is the other name for the falling wedge pattern that provides traders with future upward market direction price signals.
Is a wedge a continuation or a reversal pattern?
A wedge pattern can either be a reversal or a continuation pattern depending on during which market trend it occurs.
- If a falling wedge occurs during a downtrend, it is a reversal pattern. However, if it occurs during a temporary uptrend, it is a continuation signal that the prices will keep on decreasing in the long run. At this point, the pattern indicates that the currency pair prices are making lower lows and lower highs when compared to their historical price movement. Traders receive a signal to short or exit the trade in this situation.
- The rising wedge in upturned is a reversal pattern. However, if it occurs during a temporary downtrend, it is a continuation signal that the prices will keep on increasing in the long run. At this point, the pattern indicates that the currency pair prices are making higher highs and higher lows when compared to their historical price movement. Traders receive a signal to enter or long the trade in this situation.
Are falling wedges bullish or bearish?
Falling wedges are bearish in nature and signal a bullish reversal. It is bearish in nature because it appears after a bearish trend and signifies that bears (sellers) have temporary control of the situation before the market reverses. Since more and more sellers exit the market, selling their currency pairs, the currency pairs hit lower lows before finally correcting themselves and reversing into an uptrend.
Are rising wedges bullish or bearish?
A rising or ascending wedge is bullish in nature and signals a bearish reversal. It is bullish in nature because it appears after a bullish trend and signifies that bulls (buyers) have temporary control of the situation before the market reverses. Since more and more buyers enter the market, buying the currency pairs, the currency pairs hit higher highs before finally correcting themselves and reversing into a downtrend.
Example of a falling wedge
Let us assume that you want to trade USD/EUR, which currently trades at an exchange rate of 2. Due to a news announcement against the Euro, the exchange rate starts falling as the market trends in a downtrend. The currency’s exchange rate falls from 2 to 1.5 to 1.3 in the next few days. This makes the existing traders in the market exit their positions due to the falling prices, and the currency pair starts making lower lows hitting exchange rates at 1.2, 1.0 and 0.75. making new lower lows, the currency pair price corrects itself after touching its support level at 0.70, creating a falling wedge pattern. This pattern indicates an uptrend reversal and provides you with price levels to enter or long the trade at 0.70 to benefit from the market prices. After entering the trade at 0.70, the currency pair prices start increasing thereafter and correct themselves back at an exchange rate of 2 and continue increasing further, reaping significant profits.
Example of a rising wedge
Let us assume that the same currency pair that picked up on an uptrend in the previous example continues to be in the uptrend for the next five months. The currency pair is currently trading at a price level of 3.2, which is very close to its resistance level of 3.5. Due to another economic announcement in favour of the Euro, the exchange rate starts rising even more as the market continues trending in an uptrend. This makes new traders enter the market due to the rising prices, and currency pairs start making higher highs hitting the exchange rate of 3.45. After this point, the currency pair corrects itself after touching the resistance level and creates a rising wedge pattern. This pattern indicates a downtrend reversal and provides you with price levels to exit or short the trade either at 3.45 or any exchange rate close to it due to the downtrend reversal. You decide to exit the current trade at 3.45 and open a short position at 3.4 to benefit from the falling markets. After you close and open the new position, the currency corrects and continues falling further until it corrects itself back at the initial exchange rate of around 2. This leads to you benefitting from the profits reaped by exiting the trade and entering the short position.
Trade Falling and Rising wedges to profit from market reversals
The Falling and Rising wedges provide you with the market reversal trends and critical entry and exit points that can help you significantly improve profits for each trade. Blueberry Markets is a forex trading platform that offers real-time forex currency charts and a secure trading platform for placing forex trades seamlessly, whether you are a new trader or an experienced one. Start forex trading with Blueberry Markets to kickstart your forex journey. Sign up for a live trading account or try a risk-free demo account.
Top Pivot Point Strategies
Pivot point analysis can predict not only price movements but also help time entries and exits correctly to develop a risk management strategy.
How to Use The Bill Williams Indicator
Bill Williams Indicator is helpful in analysing trending markets, reversals and momentum.
How to Use Relative Vigor Index in Forex
The Relative Vigor Index (RVI) is a technical analysis indicator that helps measure a trend’s strength in forex trading.
Technical Trading Strategies for Day Traders
Technical trading strategies for day traders include technical analysis tools to identify short-term trading opportunities in the market.
How to Use The Force Index Indicator in Forex?
The Force Index indicator combines the currency pair’s price and volume to determine the power of bulls and bears in the market.
The Ultimate Guide to Trading Trends in Forex
Trading trends in forex provides you with opportunities to identify the strong market direction and enter an order accordingly.
MT5 Indicators Every Trader Should Know
MT5 is a forex and stock trading platform that enables traders to place automatic orders.
What is Volume Trading Strategy
Volume trading in forex is all about trading currency pairs with high buying or selling pressure.
Top Low Spread Scalping Strategies For Forex Traders
Scalping strategies allow traders to leverage on the small price changes in the forex market to turn the trends in their favour.
What is Forex Currency Swap?
Forex currency swap helps reduce foreign borrowing costs and mitigate exchange rate risks.
What is Forex Spot Trading
With forex spot trading, one can make significant short-term profits by trading at prevailing prices.
How to Short Sell a Currency
Short selling enables traders to place lucrative forex orders even in a falling market.
How to Use The Chaikin Money Flow Indicator
The Chaikin Money Flow indicator provides future market direction by analysing the strength of the market trend and underlying buying or selling pressures.
What is Momentum Trading? Top Momentum Trading Strategies
Momentum trading leverages market volatility to the trader’s advantage by identifying the strength of the market’s current trend.
How to Trade With VWAP Indicator in Forex
The Volume Weighted Average Price (VWAP) helps eliminate any unwanted price fluctuations during the trading period.
5 Top ADX Trading Strategies
The Average Directional Movement Index (ADX) strategy measures the forex market’s overall strength.
How to Identify a Trend in the Forex Market
Identifying market trends in forex is also helpful in understanding if your trading strategy is going as per plan and where you can improve.
Forex Trading Robots: How Do They Work?
Forex trading robots make multitasking possible by processing multiple conditions like order entries/exits and entering stop loss orders automatically.
What Are Momentum Indicators in Forex
Momentum indicators measure how strong the price change is in the currency pairs.
How to Use Gator Oscillator For Forex Trading
Gator Oscillator helps in identifying a trending or consolidating market.
What is The Exponential Moving Average
Exponential Moving Average (EMA) helps in understanding the market’s trend direction.
Top Forex Volatility Indicators
Forex volatility defines the risk an investor takes in the market. The higher the volatility, the greater the risk and the higher the potential returns.
How to Use Forex Market Sentiment Indicators
Sentiment indicators in the forex market indicate extremely volatile market conditions.
How to Use The Hanging Man Candlestick Pattern For Forex Trading
The Hanging Man Candlestick pattern provides downtrend reversal signals, which helps traders place sell or short orders to profit off falling markets.
How to Add MT4 Indicators
MetaTrader 4 comes with several built-in and custom indicators to boost your trading strategy.
Top MACD Trading Strategies
Moving Average Convergence Divergence (MACD) strategies enable traders to measure market momentum and trend strength.
Top Indicators for MT4
MT4 indicators help analyse forecasted currency pair prices and place exit or entry orders accordingly.
How to Trade Bullish and Bearish Divergences
Bullish and bearish divergences enable you to trade market reversals.
Top Support and Resistance Indicators
Support and Resistance indicators identify price points on the forex chart where the markets can potentially reverse.
What is The Donchian Channel Indicator
The Donchian Channel indicator can determine volatility and potential breakout signals in the market.
How to Install MT4: A Beginner's Guide
MetaTrader 4 (MT4) is a powerful forex trading platform with a user-friendly interface and advanced analytical tools for automating trading.
What are Trendlines in Forex Trading?
Trendlines in forex provide clear market signals for placing long or short orders.
Market Order vs Limit Order
Market and Limit orders help execute automatic trading transactions, as per your trading preferences.
Bearish and Bullish Markets
In the trading world, it is essential to be aware of the bull and bear market trends because they define the direction of the market
How to Read Trading Charts
Trading forex live charts can help identify ongoing market trends, which can help you place successful traders.
Top Reversal Patterns For Forex Trading
Reversal patterns provide traders with price levels at which the market can potentially reverse.
How to Find The Best Forex Trading Signals
Forex trading signals are important market triggers that provide traders with ideal entry and exit price levels in the market.
Top Forex Trading Strategies That Actually Work
Trading in forex, you will come across several forex trading strategies -- some more complex than the others. It is immensely crucial to start forex trading with the right strategy.
Scalping vs Swing Trading: What’s the Difference?
Every forex trader has a different purpose, objective, time constraints, and investment capital. The right forex trading style for you depends on your main trading goals and requirements.
What are Volume Indicators
Volume in the forex market can be used to determine the upcoming market trends. Volume indicators are forex trading indicators that can identify if the volume for a particular currency pair is high or low, providing traders with market continuation and reversal signals
Shooting Star Candlestick Pattern
The Shooting Star Candlestick Pattern can identify bearish market reversals and provide traders with ideal price levels to short or exit the trade.
Top Trading Chart Patterns
Predicting future currency pair prices help in confirming market continuation and reversal signals.
What is Slippage in Forex Trading?
Slippages occur when a currency pair order is executed at a price different from the set market order price.
Buy limit vs Sell Stop Orders in Forex
Placing buy limit and sell stop orders help employ a price control strategy on forex trades. Let's take a look at buy limit vs sell stop orders.
The Best Time Frame For Forex Trading
A time frame is a designated time period where forex trading takes place. Time frames can be measured in minutes, hours, days, weeks, months and years.
Top Technical Indicators in Forex
Technical indicators are a market direction signal based on the current and historical price movement of a currency pair that provides traders with future price expectations
Top Continuation Patterns
A continuation pattern indicates if the current market trend is going to continue in the same direction or not
How to Ace Divergence Trading in Forex
The forex market is all about timing your trades well. Divergences give traders a market reversal signal right before a price trend changes
How To Trade Forex With Japanese Candlesticks?
A Japanese Candlestick is a technical analysis tool used to analyze the currency pair’s price movement in the forex market.
Top Momentum Indicators To Analyse Trend Strength
Momentum indicators are technical analysis tools that determine in which direction the market is headed and how strong or weak the ongoing trend is
Types of Moving Averages Every Trader Should Know
Moving Average is a technical indicator which averages out currency pair prices in a specific time period in order to accurately identify market trend reversals and support-resistance levels.
8 Popular Intraday Trading Indicators
Intraday Trading Indicators help place successful short-term trade orders in the forex market.
What is the Tweezer Candlestick Formation?
The Tweezer Candlestick formation is a reversal pattern that indicates either a market top (strong uptrend) or market bottom (strong downtrend)
Average Directional Index
The ADX is a strength indicator that measures how strong or weak a particular market trend is.
How to Use Elliott Wave Theory For Forex Trading?
The Elliott Wave Theory analyses a currency pair’s long-term price movement in the forex market.
What are Pivot Points in Forex
Pivot Points help traders identify market reversals. With Pivot Points, traders can predict the support and resistance levels of a currency pair to make entry and exit decisions.
Keltner Channel is a technical indicator that provides traders with strong continuation signals and trend directions by assessing a currency pair's price volatility.
Leading vs Lagging Indicators
Leading and lagging indicators help traders measure the future and current performance of a currency pair, respectively. These indicators can help make successful trading decisions.
What is Relative Strength Index?
Relative Strength Index (RSI) helps traders understand how frequently the currency pair prices change in the forex market to predict the future market prices.
Wide Ranging Bars
Wide Ranging Bars are strong momentum indicators that help traders understand the market direction and identify ideal entry and exit points.
Harmonic Price Patterns in Forex
Harmonic Price Patterns allow traders to predict future price movements and trend reversals to make ideal entry and exit decisions in the Forex market.
Double tops and bottoms
Double Tops and Double Bottoms chart patterns help traders identify solid bullish and bearish trend reversals in the Forex market, and in turn, find the ideal market entry and exit points.
Forex Scalping Strategy
Scalping refers to trading currency pairs in the Forex market based on real-time analysis. With Forex scalping, you hold a position for a very short period and close once you see a profit opportunity.
Symmetrical Triangle Pattern
Symmetrical Triangle Patterns help identify market breakdowns (price fall) and breakouts (price rise), and in turn, help you plot the entry and exit prices for profitable Forex trading.
Introduction to Technical Analysis in Forex
Technical analysis in Forex trading provides you with significant market trends, reversals and fluctuations and in turn helps you long and short term trades.
Trading breakouts and fakeouts
Breakout and fakeout trading enable traders to take positions in rising and falling markets.
Fundamental Analysis in Forex Trading Explained
Fundamental analysis in Forex trading is one of the several methods you can use to determine the relative security and intrinsic value of a nation’s currency.
8 Top Commodity Trading Strategies
Commodity trading is one of the best ways to diversify your portfolio and protect yourself from losses incurred due to inflation.
What is a Doji Candlestick?
The Doji Candlestick is a pattern used in technical analyses of trend reversals in a market.
Moving Average: The Complete Guide
Moving Average is used in Forex trading to compare the current currency pair pricing and where it stands with respect to the current average pair prices.
What is Volatility Index (VIX) and How Do You Trade It?
One of the most popular trading markets in the world, the foreign exchange market allows investors to make quick money by trading currencies.
Forex Profit Calculator
On average, a Forex trader can make anywhere between 5 to 15% of the initial amount they invested in the market.
Understanding markets gaps and slippage
The foreign exchange rate reveals valuable details about particular currencies a trader wishes to trade-in.
What is a pip in forex?
When trading in the Forex market, you need to have a close eye on two currencies at the same time. PIP helps you denote the change in a currency pair’s value.
Introduction to Order Types in Forex
Forex has different order types which allow traders to automate entering and exiting positions.
Using orders to manage risk
Forex risk management includes a robust set of rules and regulations that protect you against Forex's negative impacts.
Managing risk in 7 steps
Risk management in Forex is essential to individuals, groups of individuals, and organizations since it enables them to implement measures that help mitigate Forex risk and its negative impact.
Bullish and Bearish Flag Patterns
Blueberry Markets discusses why it is essential to study the bullish and bearish flag patterns in Forex. Learn more.
Master risk management and
become an expert forex trader.
Move on to the advanced course.
Guide to Forex
Enter your details to get a copy of our
Start a risk free
News & Analysis
Catch up on what you might
have missed in the market.