Wedge pattern. The last out of all the trading pattern that we have been discussing over the last week.
I know there are a lot of them and soon we are going to talk about how to use all of them without being tangled in so much information.
Wedges can be of several types, but they all serve the same purpose – all of them can be easily used to spot soon-to-come reverse trend or to spot a continuation trend.
Here is the perfect example – rising wedge.
Rising wedge occurs when the higher lows line forms quicker than the higher highs. This kind of a price consolidation always leads to a breakout. Our task is to understand what side the breakout is going to go in.
In case the wedge forms after the uprising, it means that we are looking at a bearish reversal trend. That means the the breakout will be downwards.
And just like with any other pattern we can easily spot the magnitude of the fall – it will be the same as the price of the formation of the wedge.
Although on the picture we see a wedge formed after the up movement, it can happen that the wedge can form after the downtrend. In that case the graph is signaling us about the continuation of the trend.
Now, the falling wedge.
It can usually be spotted after the downtrend, in case you were wondering. In case you see a wedge forming on the end of the downtrend, that means that soon we are going to see a rapid surge, as this is the main purpose of the wedge pattern.
It can also be formed right after the up movement as a signal for continuation of the trend. As the contrast for the rising wedge it is a pattern for the bullish market.
In the picture we see the falling wedge that is going to serve as a reversal trend indicator.
The price can consolidate in any case and our main task is to know when and where the breakout is going to happen.
And yes, I know that out of all of the pattern this one is the most confusing. Even the pros say so themselves. But the good news is that now when we have learned all of the pattern we can finally start talking about the ways we can start remembering and using them.
So, whew! We are almost done with this.