Many of the traders confuse wedges with triangles although rising and falling wedges are easily distinguishable from other chart patterns.
The rising wedge patterns are usually reversal patterns, and they are developed when prices are reaching higher highs and higher lows. It is an ascending price action that is narrowing as the lines are finally connected in the apex. Also, is called the ascending wedge-
On the AUDUSD daily chart, we can now easily identify the rising wedge. For the pattern to be confirmed we needed to see a break below the lower wedge line, 0.7650 level, which happened. The clear daily close has triggered almost 130 pips fall in the pair. With this break, the recent medium-term uptrend is completely invalidated and the traders should now search for only short trade entries with stop loss orders slightly above the wedge break point.
On the EURAUD daily chart, we can identify the falling wedge. For the pattern to be confirmed we needed to see a break below the upper wedge line, 1.3780 level, also already happened. Te clear daily close has triggered almost 200 pips bounce to the upside. With this break, the recent medium-term downtrend is invalidated and the pair could now retest, the last strong downside resistance 1.4150 level and possibly even the long term falling trend line 1.4200-1.4300 zone.
How can you interpret this wedge chart patterns?
You can see, that the prevailing trends, are invalidated and you can now search for counter-trend trades with the greater probability of success. If you are counter-trend trader this formation are valuable for trend reversal and the change of the market direction. For example, if you took the long trade at the 1.3900 level on a bullish shadow candle on the EURAUD, you were probably stopped out with almost 200 pips loss (taking into account that you have placed stop loss 50 pips below the bullish candle). Taking long trades after the falling wedge break will give you higher success probability, even in the case you are trading against the medium-term trend which is valid for both pairs.
Happy trading! (click on the chart to enlarge it)
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