EURUSD Wedge Pattern Formation

Implication: A Continuation Wedge (Bearish) is considered a bearish signal, indicating that the current downtrend may continue.

Description: A Continuation Wedge (Bearish) consists of two converging trend lines. The trend lines are slanted upward. Unlike the Triangles where the apex is pointed to the right, the apex of this pattern is slanted upwards at an angle. This is because prices edge steadily higher in a converging pattern i.e. there are higher highs and higher lows. A bearish signal occurs when prices break below the lower trendline.

Over the weeks or months that this pattern forms the trend appears upwards but the long-term range is still downward.

Trading Considerations

Pattern Duration: Consider the duration of the pattern and its relationship to your trading time horizons. The duration of the pattern is considered to be an indicator of the duration of the influence of this pattern. The longer the pattern the longer it will take for the price to move to the Target. The shorter the pattern the sooner the price move. If you are considering a short-term trading opportunity, look for a pattern with a short duration. If you are considering a longer-term trading opportunity, look for a pattern with a longer duration.

Target Price: The target price provides an important indication about the potential price move that this pattern indicates. Consider whether the target price for this pattern is sufficient to provide adequate returns after your costs (such as commissions) have been taken into account. A good rule of thumb is that the target price must indicate a potential return of greater than 5% before a pattern should be considered useful. However you must consider the current price and the volume of shares you intend to trade. Also, check that the target price has not already been achieved.

Criteria that Supports

Volume:  Volume should diminish as the pattern forms.

Criteria that Refutes:

Moving Average: The penetration of the 200-day Moving Average by the price is a false bull signal.

Rising or Stable Volume: Volume should diminish as the pattern forms. If volume remains the same or increases this signal is less reliable.

Underlying Behavior: In this pattern prices edge steadily higher in a converging pattern i.e. there are higher highs and higher lows indicating that bulls are winning over bears. However, at the breakout point the bears emerge the victors and the price descends.

EURUSD has given a confirm reversal from the higher level of 1.3830 and on weekly basis piercing pattern has been formed and if today’s closing is seen below 1.3650 will strongly give the confirmation of the down side move where 1.3150 will be the immediate target which is the rising trend line. Short term support is expected to hold the level of 1.3100 and further sustain trading below 1.3100 will give a confirmation of down trend to continue. Height of the Pole is 2900 pips (1.4940 – 1.2040 = 0.2900) and if we take 50% as first target of the pole (0.2900 * 50% = 0.1450 pips) from the breakdown @ 1.3200 comes to 1.1750 level and second target comes to the level of 1.0300 (1.3200 – 0.2900 = 1.0300 level). To be safer side we will expect target of 1.1750 level from the current level and on higher side weekly closing must not trade above 1.4000 level and as a stop if hold one can maintain short for the given target.