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In our last lesson we looked at specific strategies for trading the Head and Shoulders Pattern and the Reverse Head and Shoulders Pattern, two chart patterns which we view as reversal patterns when they show up in the stock, futures, or forex markets. In this lesson we are going to look at a pattern called the wedge pattern, which is unique in the sense that it can be viewed as either a reversal pattern or a continuation pattern, depending on the shape of the pattern and whether it is located in an uptrend or a downtrend.

The Falling Wedge:

The falling wedge pattern is characterized by a chart pattern which forms when the market makes lower lows and lower highs with a contracting range. When you find this pattern in a downtrend it is considered a reversal pattern as the contraction of the range indicates the downtrend is loosing steam. When you find this pattern in an uptend it is considered a bullish pattern as the market range becomes narrower into the correction indicating that it is running out of steam and the resumption of the uptrend is in the making.

Example of the Falling Wedge Reversal:



Example of the Falling Wedge Continuation:



The Rising Wedge:

The rising wedge pattern is characterized by a chart pattern which forms when the market makes higher highs and higher lows with a contracting range. When you find this pattern in an uptrend it is considered a reversal pattern as the contraction of the range indicates that the uptrend is loosing steam. When you find this pattern in a downtrend it is considered a bullish pattern as the market range becomes narrower into the correction indicating that it is running out of steam and the resumption of the downtrend is in the making.

Example of the Rising Wedge Reversal:



Example of the Rising Wedge Continuation:


Links to Help You Learn About Wedge Patterns:

Falling Wedge - Falling Wedge Pattern
Falling Wedge (Reversal) - StockCharts.com
Tales From The Trenches: The Rising Wedge Breakdown
Chart Examples of Wedge Patterns
 
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