![]() ![]() There are three common mistakes I see traders making when it comes to trading the wedge. So although they don’t come around all that often, wedges should certainly be something that you watch for during extended periods of consolidation. This combination allows you to secure a nice profit in a relatively short period of time. ![]() ![]() However, they also allow for an advantageous risk to reward ratio, especially the larger structures that form on the daily chart. Wedges tend to play out relatively quickly compared to something like the head and shoulders pattern. While you can trade these on the 4-hour time frame, in my experience the most lucrative trade setups form on the daily time frame. By “really great”, I’m referring to the ones that form on the daily chart. The really great wedge patterns don’t come around all that often. By 2010, I had not only become proficient in trading them, but I had also developed the intuition necessary to identify the most profitable formations – something that can only be had after years of practice. The wedge was one of the first Forex chart patterns I began trading shortly after I entered the market in 2007. Only once support or resistance is broken should you begin to identify possible targets. That said, it’s important not to get caught up in trying to predict a future direction while the pattern is still intact. This means that once broken, price tends to move in the direction of the preceding trend. Unlike the head and shoulders we just discussed, the wedge is most often viewed as a continuation pattern. While a break of the trend line (if one exists) may trigger a change in trend, it does not fit the criteria to be called, or traded as, a head and shoulders pattern.Īs the name implies, the wedge is a technical pattern in which price moves into a narrowing formation, also called a triangle. Situations where the shoulders don’t overlap are most common when the pattern unfolds at a steep angle. In order to be considered valid, the two shoulders of the pattern must overlap at some point. ![]() This is something that you may not know (unless of course you’re one of my members). This fact alone takes a lot of the guesswork out of determining when the pattern has confirmed.Īnother huge benefit, like the other two technical formations below, is that we have a measured objective from which to identify a possible target. The pattern can offer a precise entry given the fact that the neckline is generally based on several highs or lows. But more than that, it can be quite easy to spot and extremely profitable when you know what to look for and how to trade it. While there may be similar price structures that occur more frequently, a valid and therefore tradable head and shoulders reversal doesn’t come around very often. The head and shoulders is the least common of the three formations we will discuss today. However, the last year of trading has produced a new winner in my book. That includes its inverse, which has similar characteristics.įor those who have followed me for a while now, you may recall that my favorite pattern to trade used to be the wedge. This is not only my favorite reversal pattern, but it is also my favorite pattern, period. ![]()
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