The wedge pattern signals that the current trend has stopped. When you face this information, it means that the trader is still hesitant about which direction to push the exchange rate.
When the price is kept within the range of inclined resistance and support lines, an upward wedge is formed.
Here, the slope of the support line is greater than the slope of the resistance line. This means that the rising lows are forming faster than the rising highs.
With the consolidation of prices, we know that the big market is coming, so we can expect that there may be a breakthrough in the upward or downward market.
If an ascending wedge pattern is formed after an ascending market, it is usually a reverse bearish pattern.
On the other hand, if it is formed in a falling market, it may mean that the downward trend continues.
In any case, the important thing is that when you recognize the wedge shape, you are ready to set up your own(stop entry order).
In the first example, the upward wedge pattern formed at the end of the upward trend. Notice how the price movement formed a new high. At this time, the formation rate of the new high is slower than that of the rising lows.
See how the price subsequently fell below the support line and went lower? This means that there are more traders going short in succession.
They drove the price to fall below the upward trend line, which means that a round of declines may be about to start.
As we discussed in the previous lesson, the price decline after the breakout is approximately equal to the height of the pattern.
Now, let us look at another example of rising wedge. But this time it played the role of a continuing signal of decline.
As shown in the figure, the price experienced a period of decline before entering consolidation. During this consolidation period, the highs and lows of prices continued to rise.
In this example, the price fell below the rebound upward trend line and continued the previous decline. This is why it is called a continuous signal.
Pay attention to how the price goes out of the beautiful decline, and the decline is highly consistent with the pattern.
What have we learned so far?
An upward wedge is formed late in the upward trend, which may lead to a reversal of the price trend, and an upward wedge is formed during the downward trend, which is usually a signal that prices continue to fall.
Simply put, the rising wedge leads to a falling market, which means that the pattern is bearish.