How To Trade Wedges

Wedges are a widespread group of patterns, that are particularly common in the EUR\JPY and GBP\JPY currency pairs. In this article I will describe the methods of trading it for maximum profit.

Visual
The wedge is a chart pattern with two trendlines that are both at the same direction, but with different slope. Its appearance resembles an expansion of range. It is one of the easiest patterns to identify but one of the hardest to trade correctly, and incurs losses to many traders.

This is a reversal pattern - it signals the end of the current trend and beginning of movement in the opposite direction. However, the pattern is still moving in the prevailing trend so signaling a precise entry point is hard for most traders and present many losses.

Trading The Wedge
Most traders trade the wedge like any normal pattern: Trying to take long trades on the Support trendline, or in worst case taking short trades on the Resistance one, hoping for price to begin its reversal. Most of these trades fail, because a Wedge should not be traded like standard pattern.

A wedge should be traded in the following way:
Once we identified a wedge, we must expect reversal of price, and should wait for price to hit a strong level (support or resistance). Once price has hit a strong level and the reversal is confirmed with Japanese candlesticks - then we enter. Such stopping point may be a Fibonacci retracement of price.
Examples:

Do not trade the pullback to this pattern, as it is also not profitable in the long-term.

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