Forex trading system “Wedge Pattern”
The “Wedge Pattern” system can be used for positional or intraday trading in the Forex market, depending on the time period used. This system consists of only three components and that is what makes it very simple and easy to use. These components are: “Rising Wedge”, “Down Wedge” and Japanese candle formation patterns.
It is preferable to use a 30-minute, hourly, 4-hour or daily time period for this system, because most Japanese candlestick formations are not sensitive at lower time periods. Before applying wedges, Japanese candle formations are used to determine the vertices and bases.
After identification of vertices and bases, they are connected by trend lines and form figures, by which the patterns “Falling Wedge” (descending wedge) and “Rising Wedge” (ascending wedge) are defined. These patterns are very similar to the figure of “triangle”. The difference is that the triangle has the lower trend line directed upwards and the upper trend line – downwards. The pattern “Rising Wedge” has both trend lines directed upwards and the pattern “Falling Wedge” – downwards
Sample Rising Wedge pattern.
Sample pattern “Falling Wedge”.
To facilitate the trader’s work, the “Wedges” indicator was created, which automatically draws trend lines. By the direction of these lines, the corresponding pattern can be identified. You can download this indicator by clicking the link at the bottom of the article.
The main idea of the system is to enter the market after the trend line breakthrough. There are two methods of entry. The first is that the position opens at the closing of the breakout candlestick. However, losses can be incurred if the trend movement continues after that. The second method is to wait for the price to return to the pierced trendline and then enter. But in this case, you can skip a profitable entrance. Therefore, it is necessary to pay attention to the candlestick models formed after a breakthrough of the trend line. The older the timeframe, the more accurate the forecast. And the reliability and security of trade will be ensured by regulated brokers
This screenshot shows a sample of opening a buy position using the first method. A downward wedge was formed on the hourly chart, which broke through upwards. The purchase was made after closing the candlestick and the candlestick models confirm the direction. Stop-loss is set at 40 points on the lower trend line. Take Profit was set at a distance of 80 points, i.e. in the ratio of 2:1.
This picture shows trend lines from the maximum and minimum of the day upwards on the tops and bases of candlesticks. A rising wedge was formed, which was broken through downwards. The sale was made at the closing of the candle breakthrough. The stop-loss is set at 20 points on the top of the trend line. Take Profit is set in double size.
There may be other ways of profit taking. For example, on a trailing foot or on a candlestick reversal model.