Rising and Falling Wedge – Reversal or Continuation?
Learn to identify and trade rising and falling wedge patterns, and understand when they signal reversal or continuation of the prevailing trend.
Mark · Trader & Founder, Social Forex
Definition
The Rising Wedge and Falling Wedge are important price patterns in technical analysis. They form when price is compressed between two converging trendlines. Unlike flags or triangles, both trendlines of a wedge slope in the same direction – both point up or both point down.
How to Identify
Rising wedge: Higher highs and higher lows, but the range narrows. The resistance line connecting highs and the support line connecting lows both slope upward, creating a wedge shape pointing up. The convergence suggests buying momentum is fading even though price still makes new highs.
Falling wedge: Lower highs and lower lows, but the range narrows. Both trendlines slope downward. Selling pressure decreases even though price continues making lower lows.
The most important step is to identify the trend before the pattern appears. The wedge shape itself does not tell you whether it is reversal or continuation; the market context does.
Reversal or Continuation?
A rising wedge after a clear uptrend usually signals a bearish reversal. If it appears in a downtrend, it can act as a bearish continuation – price breaks down and continues lower.
A falling wedge after a clear downtrend often signals a bullish reversal. If it appears in an uptrend, it is a bullish continuation – price breaks upward and extends the uptrend.
How to Trade
Do not trade while price is still inside the wedge. Wait for a clear breakout beyond the boundary trendline.
Breakouts on high volume have a higher probability of success. In forex, watch volume if available, or use volatility as a proxy.
Entry: After a candlestick closes clearly above the trendline (for a falling wedge) or below the trendline (for a rising wedge).
Stop loss: Place it at the recent high/low inside the wedge, or a safe distance from the breakout point using ATR.
Take profit: Measure the initial height of the wedge (from the start to the convergence point) and project it from the breakout level. Fibonacci extensions or key support/resistance levels can also be used.
Real Examples
Suppose EUR/USD has rallied 300 pips and then forms a rising wedge with narrowing range. When price breaks below the wedge support, this is a sell signal. A trader could enter short on the breakout candle, place a stop loss above the nearest wedge high, and target a move equal to the pattern height.
Conversely, if GBP/USD is falling and a falling wedge appears, then price breaks above the resistance line, the trader enters long. If the falling wedge forms during an uptrend and breaks upward, it offers another long opportunity in the direction of the trend.
Common Mistakes
Confusing wedges with triangles or flags – remember that wedges have two trendlines sloping in the same direction.
Entering too early before a confirmed breakout, which often leads to stop-outs.
Ignoring the larger trend context, causing traders to misinterpret the pattern as reversal or continuation.
Not using a stop loss, or placing the stop too tight so it gets hit before price moves in the expected direction.
Content is for reference only, not investment advice. Forex trading carries high risk.
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