Technicalities of Forex Trading: Defining Wedges

Enhancing our expertise in the forex trading industry requires a lot of effort on research and application. In fact, most traders need to be well versed with the various aspects of indicators, trends, and even current events because these serve as the best weapon to predict and create an effective plan. For today's post, we shall talk about a commonly used pattern in the currency trading field. These are called wedges.

What are Wedges?

Wedges are trading patterns where two trend lines converge or come together. With this visible convergence, the pattern indicates that the intensity of price rates are getting lower. Thus, it shows a pause in the present market trend. Moreover, it also gives you a sign that forex traders are amidst their decision on where to take their pair next.

Types of Wedges

1.Rising Wedge

This wedge type is found in a bearish chart pattern. In appearance, the pattern moves in a downward direction but its lines slope upward. It is believed that this pattern is formed when market rates coordinate with the upward sloping support and resistance lines. If this happens, financial experts interpret this movement as a signal for an upcoming breakout to either the top or bottom.

2. Falling Wedge

 Similar to the rising wedge, this pattern could be a signal for reversal or continuation. Being a reversal signal, the pattern is expected to show a formation at the bottom of a downtrend. This goes to show that an uptrend will come next. In the case of a continuation, this pattern appears during an uptrend. If this is the case, it is expected that upward price action will push through.

How to Use Wedges

These patterns can be regarded as flags or signals. As an indicator, it is therefore used to analyze large price breaks. As you look at the pattern, observe where the price break occurs. If it is located through the indicator on the downside, expect a large downward move. Otherwise, you should expect a large move up.  By applying this technique, you can also use it to confirm a Gartley or butterfly pattern.

Importance of Wedges

In forex trading, these patterns help a trader to make implications so as to create an effective trading plan. If a wedge is visible on a chart, one can say that market movement is on its undecided stage. This means that it could either break downwards or upwards. As soon as the rates break the flag, a trader can visibly see the movement and direction of the break. If a trader is aiming for some pips experts suggest that you lock in your profits at the target. You are able to do this by closing down a part of your position then letting the rest of your position ride.

Conclusion:

Reading about wedges along with other notes on indicators is really one of the most effective ways to enhance your knowledge on the field. However, you have to remember that reading is always easier than applying the principles. You can never be an expert by theories alone. You have to couple your knowledge with practice in order to obtain mastery and then succeed.