Figure "Wedge"

The use of graphical analysis in the Forex market is no less effective way of predicting price fluctuations than the use of various indicators or fundamental analysis.

The entire analysis is based on drawing various figures on the chart, which can tell us about a possible continuation or change in the direction of the trend.

Where exactly did these figures come from and why are they so actively used? The fact is that graphical analysis was one of the very first; therefore, over the course of decades of trading, traders noticed a number of patterns, which actually developed into teaching aids in the form of various figures.

The “Wedge” figure is a reversal figure in graphical analysis, which, as a rule, appears at the peak of the end of a trend and signals us about a possible price reversal. There are two types of wedge, namely bearish and bullish. Each of them appears on the trends by which they are named.

The construction of the pattern is very simple, you need to draw two trend lines along the two or three latest price highs and lows.

The construction is very similar to the construction of a regular channel, since in this way we build the upper and lower lines of support and resistance. After construction, you should form a figure that is very reminiscent of a wedge.

As a rule, the wedge is directed exactly in the direction where the trend itself is heading. If the narrowing of the lines is directed in the opposite direction of the trend, this can tell us about the strength of the trend and its continuation. How to actually trade using the Wedge pattern?

If a wedge has formed in a bullish trend, then we enter a sell position when the price breaks through the lower support line. You can see the pattern itself and the entry into the position in more detail in the picture below:

 If a wedge has formed in a bearish trend, then the position is entered when the upper line, or more precisely, the resistance line, is broken. An example of a wedge pattern for a bearish market and entering a buy position can be seen in the picture below:

It is not necessary to enter a position to break through a wedge. pending orders to make sure that a new trend is forming and not to enter on a false signal .

So, when a bearish wedge appears, a pending buy stop is placed at the level of the local maximum, along which the signal resistance line is drawn. For a wedge that appears during a bullish trend, a pending sell stop is placed at the level of the nearest local minimum, along which the support line is actually constructed.
A stop order is usually placed at the nearest extreme, and the profit is set at least twice as large as the stop order. An example of using a pending order is shown in the picture below:

 In conclusion, I want to say that the wedge pattern can be used on any time frame, as well as on any instrument, be it futures, stocks or currency pairs. Of course, you are not required to perfectly apply all the patterns of graphical analysis, but if you see that such a strong reversal pattern has formed in front of you, why not take advantage of it? Thank you for your attention and happy trading!