Trade Share CFDs for your favourite companies and 50+ U.S. stocks. Click here.
Refer a friend
Image placeholder

Intermediate

Have a basic understanding of
Forex, but not sure how to
level
up? We have got you covered.

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.

Falling Rising Wedges graphic

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.

Falling Rising Wedges graphic

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
Falling Rising Wedges graphic

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
Falling Rising Wedges graphic

Two trends that Falling and Rising Wedges confirm

1. 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
Falling Rising Wedges graphic
2. 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
Falling Rising Wedges graphic

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.

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 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. Sign up for a live trading account or try a risk-free demo account.

Guide to Forex
Trading indicators.

Enter your details to get a copy of our
free eBook

Thank you, please check your inbox for your ebook

News & Analysiss

Catch up on what you might
have missed in the market.

Runner graphic

Ready to trade at
Blueberry Markets?

Your best trading experience
is a click away