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Ascending Wedge in the Forex Market

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Monday, 08 December 2008 12:50

An ascending wedge is usually bearish. What begins with a wide top and narrows as prices action moves higher usually results in a bottom side break. Prices form a wedge that slopes upward as the high and low prices begin to contract and lower volatility ensues. Though this pattern is considered to be bearish, it is important to remember that a break out is needed before confirmation of the bearish bias occurs.

Because the rising wedge can occur as a reversal pattern or a continuation pattern, it is also important to consider the direction of the prevailing trend. If the prevailing trend is down, you will be looking for continuation setups. If the prevailing trend is up, you will be looking for reversal setups.

In the following example from the EUR/USD you can see how important it is to confirm the break to the bottom (Bearish) side. In other words the currency pair should be expected to fall.

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