Wedges are both trend reversal and continuation patterns. One can define the different by knowing that a rising wedge in a up trend is a sign of a reversal whereas a rising wedge in a downtrend is considered as a type of retracementand you want to be looking to trade back into the direction of the trend (see attachment) This is also the same for descending wedges. a descending wedge in a downtrend is the reversal sign and in a up trend is a retracement. The reversal wedge patterns are signs of a trend losing strength. The pattern pushes into a new highs or lows but with momentum slowing forming the wedge pattern. once price breaks the wedge and prior high or low confirming the reversol, I preferably always wait for a pullback to the breakout of a fib level trading this pattern. Target is the Distance Between The Mouth of the wedge Added To The Breakout.
Conventional Way To Terad The Wedge Reversal:
-----Ascending Wedge Bearish Reversal----- (1) Wait for a clear Ascending Wedge to form. (2) Wait for price to break and close below previous low - swing low. (3) Sell pullback at breakout level. (4) Stop above the 50% retracement of top of wedge to breakout. (Can also Use Wedge High) (5) Target Is the Distance Between The Mouth of the wedge Added To The Breakout.
-----Descending Wedge Bullish Reversal----- (1) Wait for a clear Descending Wedge to form. (2) Wait for price to break and close Above previous high. (3) Buy pullback at Breakout. (4) Stop below the 50% retracement of breakout to bottom of wedge. (Can also Use Wedge Low) (5) Target Is the Distance Between The Mouth of the wedge Added To The Breakout.