How To Trade Wedges
A popular chart pattern used by many FOREX traders is the falling wedge. The reason this pattern is especially beneficial to traders is its ability to give traders who had missed a previous up move another chance to rejoin the trend.
The rising wedge chart pattern develops when price records higher tops and even higher bottoms. Therefore, the wedge is like an ascending corridor, where the walls are narrowing until the lines finally connect at an apex.
Trading the Breakout
Notice in the image above we are waiting for the market to close below the support level. This close confirms the pattern but only a retest of former wedge support will trigger a short entry.
The same holds true for a falling wedge, only this time we wait for the market to close above resistance and then watch for a retest of the level as new support.
During these formations the bulls and the bears are heaving a bitter fight, until one side eventually gives up and it doesn´t matter if this consolidation is taking place after an uptrend or a downtrend. When you use ascending and descending wedge or triangle chart patterns for trading, you know which way the price will go after the breakout, but symmetrical wedges and triangles don´t give you a clear direction. That doesn´t mean you cannot trade them though.