As soon as the market broke down below the uptrend line of the rising wedge, it was relatively quick to reach towards the target of the bottom of the pattern itself. You can see that the market had been rallying during the months of January, February, and March of 2017. In the example below, take a look at the US dollar/Swiss franc currency pair. While quite often traders will use them on shorter-term time frames, the reality is you can see them on a daily and weekly charts as well, and I would even argue that perhaps they may have a bit more potency and importance built into him on these higher time frames, because it takes much more effort to form the pattern to begin with. By paying attention to the rising wedge, you are noticing that the market is running out of momentum, and that an eminent reversal may be coming. The stop loss would be placed on the other side of the rising wedge pattern, and in this case, it is an easy 1:2 risk to reward ratio. When they get broken, they catch everybody’s attention. So even if they are not trading wedge patterns and are ignoring this current rising wedge, almost all traders pay attention to trendlines. Beyond that, what is even more important is that at the very least most traders around the world will see that the trend line had been broken. The beauty of this pattern is that a break down below the uptrend line signals that we are going to the bottom of the pattern itself, denoted by the blue line. We are losing some of our momentum, and as a result the highs just are not as impressive as they once were. In this example, it is what is known as a “rising wedge.” A rising wedge shows compression in and uptrend that signals that there could be something wrong. The two red lines show what a rising wedge looks like. The highs were getting higher than the ones before but slowing down in terms of momentum. However, you can also see that the sellers were becoming a bit more aggressive, compressing market action on the way up.

In this chart, you can see that the New Zealand dollar has been rising for quite some time, and the red uptrend line shows where there was support on the last move towards the top of the chart. Compression is something that should always be paid attention because markets will not compress forever, and eventually inertia comes back into play.

If there is an uptrend line, the wedge formation is known as a rising wedge. In other words, you may have an uptrend line as per usual, but at the top of trading during the last several candlesticks, the sellers are becoming a bit more aggressive, compressing the market. It is like a triangle but does not converge in a horizontal manner. In other words, price is compressing from both selling and buying pressure. A wedge is simply two trendlines that converge towards an apex. The first thing that we need to do is identify what a wedge actually is.

Falling wedge pattern meaning