24# Wedge Pattern Forex Trading System

Entry: - You may look to enter a trade whenever you form a Falling or Descending Wedge in a declining market and confirm the bottom with a Japanese Candlestick reversal formation (we’ll look at some of the different Candlestick formations to look out for soon).

Enter long when price breaks the upper line of the Falling or Descending Wedge. There are two ways to enter long when using this system.

1. You can enter at the close of the break out candle. This type of entry requires a high margin level i.e. you must have enough balance/equity to be able to carry the position if there is a sudden price pullback. A benefit of using this entry is that after the breakout if price decides to move in the direction of the breakout without retracement you would not miss the entry.

2. You can better still wait for the first pull back after the break out. I like this type of entry because it requires a lower margin level but it can miss an entry in a highly volatile market.

Stop loss: - Place your stop loss 15-20 pips below the edge of the blunt trend line (lower trend line) in a Falling or Descending Wedge.

Target: - Place your target at least twice the difference between the sharp (higher) & blunt (lower) trend lines of the Falling or Descending Wedge (this should be considered based on the open side of the wedge). See the image above. For example: Look at the wider end of the wedge formation on the left. If the distance between the high on the upper trendline and the low on the bottom trendline is 100 pips, your target will be 200 pips away from your entry level.

Exits: - I also look out for reversal candlestick formations. This will trigger my early exit provided that it is one of the candlestick formations I have included in this document. See the Candlestick patterns section for more information on these patterns.

My Method of Identifying a Rising Wedge

Have a look at the following diagrams. Here you can see examples of rising or ascending wedges. Notice how the bottom line connects the lows while it is ascending and the top lineconnects the highs. 

Entry: - You may look to enter a trade whenever you form a Rising or Ascending Wedge in a

rising market and confirm the top with a Japanese candlestick reversal formation (we’ll look at some of the different Candlestick formations to look out for soon). Enter short when price breaks the lower line of the inclined wedge. But remember, there are two ways that you can enter short with this system.

1. You can enter at the close of the break out candle. This type of entry requires a high margin level i.e. you must have enough balance/equity that is able to carry the position if there is a sudden price pullback. A benefit of using this entry is that after the breakout if price decides to move in the direction of the breakout without retracement you would not miss the entry.

2. You can better still wait for the first pull back after the break out. I like this type of entry because it requires low margin level but it can miss an entry in a highly volatile market.

Stop loss: - This system is very simple and easy because every thing which was applied to long trades is applied to short trades too. So, place your stop loss 15-20 pips above the edge of the blunt trend line (upper trend line) in a Rising or Ascending Wedge.

Target: - Just as explained above, place your target at least twice the difference between the sharp (lower) & blunt (higher) trend lines of the Rising or Ascending Wedge (this should be

considered based on the open side of the wedge). See the image above. For example: Look at the wider end of the wedge formation on the left. If the distance between the high on the upper trendline and the low on the bottom trendline is 100 pips, your target will be 200 pips away from your entry level.

Exits: - I also look out for reversal candlestick formations.