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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.

Bearish Reversal at USD\CAD, 4-hour chart

Strong bearish reversal sign at the USD\CAD: A precise Wedge - one of the most reliable reversal signals.

Moreover, the price was stopped at exactly 38.2% of the last big trend, which means that the late uptrend since May was merely a Retracement.

Trading
If price stops again at 1.1600 and creates reversal candlestick formation, enter Short with big targets ahead.

Broadening Megaphone - GBP\USD, four-hour chart

A nice, clean Broadening Megaphone in the GBP\USD, at the 4-hour chart. A very reliable pattern that produces high-probability trades.

Pattern is 400 pips in size - a plenty of room for trading within the Support and Resistance.

Trading
Long trades will be taken on Support trendline.
Short trades will be taken - cautiously - on Resistance trendline. Beware that this pattern may break upwards, so profit taking should be quicker.

Explained Trade: Broadening Wedge at EUR\USD

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Broadening Wedge pattern in the EUR\USD. This pattern is a reversal pattern, in this case bearish reversal.

As you may have noticed, I do not enter at the breakouts themselves so I waited for pullback to confirm my entry and to get a better, more precise stop loss. A pullback occurred and a Evening Star candlestick formation confirmed the entry.

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