4 Steps to Trade GBPCHF Rising Wedge

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Talking Points:

Rising Wedges are bearish reversal patterns that start of wide at the top of the pattern and narrows as price moves higher. Negative MACD Divergence confirms a bearish move ahead. The height of the pattern can be used to determine a profit target. Forex price patterns are predictive in natures and can give traders a clue to the direction and distance of the next price move. However, these price patterns do not work a 100% of the time and Forex traders need to know the point when a pattern ‘fails’.

The Forex rising wedge pattern is a powerful consolidation price pattern formed when price is bound between two rising trend lines. These lines form support and resistance levels that start off wide at the bottom of the pattern and narrow at the top. There are four steps to trade this pattern; measure height of pattern, determine last swing high for a stop, set entry below last low, confirm a bearish move with MACD.

Learn Forex: GBPCHF Bearish Rising Wedge

The Trade Setup

GBPCHF has declined some 500 pips since reaching a high of 1.5475 back on 7/23/2012. After rebounding from a low at 1.3964 made on 2/25/2013 to a high of 1.4922 on 12/2/2013, GBPCHF has broken down below the rising trend line that formed the bottom of this rising wedge at 1.4511. Each rising wedge will typically imply a drop equal in distance from the last significant high use price patterns to anticipate when and where a breakout may happen. As this could be a very large distance, traders can also use the height of the pattern to obtain a profit target as well. In this case, the height of the pattern is around 697 pips. We can now use this “pip measurement” to determine the profit target. Subtracting 697 from 1.4511 we come up with a profit target located at 1.3814.

Next, we identify the last swing high within the pattern in order to set a protective stop loss. This stop loss level should be less than our profit target. A typical trader mistake is to risk more on a trade than they stand to make in profit. The last swing high was reached on December 10th at 1.4645 so a stop can be placed just above that level. The final step is to set an entry order to short GBPCHF around four pips below the last low of 1.4487 that was made on 12/11/2013. The first three steps are at the core of what Forex traders can use to trade the rising wedge pattern. The fourth step that I use is the addition of MACD confirmation. Since MACD confirms trend direction as well as forecasts turning points, the presence of negative MACD divergence preceding a breakout can give traders an additional layer of confidence that the downward slide is near. Using these steps help to stack the odds in your favor. Having a repeatable checklist of steps can insure that you stick to your rising wedge trading plan.

---Written by Gregory McLeod Trading Instructor

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This article outlined a plan for trading the rising wedge after a breakout. Another way to find an entry is with the use of Fibonacci Retracements. Sign my guestbook to automatically enroll in a 20-minute Fibonacci Retracement course. By watching the slide presentation and taking the short quizzes you can dramatically increase your confidence in finding Forex Retracement Discounts!