A Guide to Forex Wedge Patterns
The technical analysis methods of the Head and Shoulders Pattern and the Reverse Head and Shoulders Pattern have been discussed. These two trend chart patterns are reversal patterns and are commonly found on Forex markets.
This pattern is called the wedge pattern. The forex Wedge pattern is uniquely distinctive from other trend chart patterns. The FX trading wedge pattern can be distinguished from the Symmetrical triangle pattern, Head and shoulder pattern and Reverse Head and Shoulders Pattern by the fact that the wedge pattern may be viewed as a reversal pattern or a continuation pattern. The forex Wedge pattern can be classified as a reversal pattern or a continuation pattern based on the shape of the specific pattern and whether it forms in an uptrend or a downtrend price movement.
The main function of a foreign exchange currency wedge pattern is to indicate a reverse of trend that is currently forming within the main trend of the wedge itself. FX trading wedge patterns are very similar in form to the symmetrical triangle chart pattern. Both charting types are assembled by two support and resistance trend lines.
The foreign exchange wedge pattern differs from the triangle chart pattern in that it forms over a generally longer term, usually lasting in the region of 3 to 6 months. Another difference can be noted in the trend line characteristics. The converging trend lines of the Forex Wedge pattern slants more in an upwards or downwards price movement direction than the symmetrical (uniform) trend lines of the triangles.
There are two main types of wedges – falling and rising – which differ on the overall slant of the pattern. A falling wedge slopes downward, while a rising wedge slants upward.
Wedge patterns can consist of two different types of patterns, namely the falling wedge pattern, and the rising wedge pattern. Let’s investigate the different elements found in a common wedge chart.
The Falling Wedge: The falling wedge pattern generally identifies a bullish pattern in Forex markets. The falling wedge pattern is formed mostly when the FX Market is making lower lows and even lower highs with a decreasing price movement range. The falling wedge pattern is considered a reversal pattern when it develops in a downtrend. The falling wedge pattern is considered a bullish pattern when it develops in an uptrend.
The Rising Wedge: The rising wedge pattern generally identifies a bearish pattern in Forex markets. The rising wedge pattern is formed mostly when the FX Market is making higher highs and even higher lows with a decreasing price movement range. The rising wedge pattern is considered a bullish pattern when it develops in a downtrend. The falling wedge pattern is considered a reversal pattern when it develops in an uptrend.