WEDGES

A wedge is a unique reversal pattern that indicates a directional change from the trend contained within the pattern itself. Wedges are formed when price stays within two converging trendlines that slope in the same up or down direction. While the wedge holds, the upper trendline acts as resistance and the lower trendline acts as support. Binary option traders who see a wedge pattern forming should prepare trades that will allow them to profit from a move in the opposite direction of the trend within the wedge.

Rising wedges form around internal uptrends. Both the support and resistance lines that can be drawn around a rising wedge will be sloped in the direction of increasing price. As the two lines converge, price is expected to break out of the wedge to the downside, so binary option traders who see a rising wedge should put their money into Put-style options that require price to fall to be in-the-money.

Falling wedges are the opposite of rising wedges in that they form around internal downtrends. The support and resistance lines that border price in a falling wedge slope in the downward direction, and as they converge price is expected to break out of the patttern to the upside. Binary option traders who observe a falling wedge in progress should position themselves with Call-style options that require price to rise to be in-the-money.

Wedges should not be confused with triangles. Though similar in shape to wedges, triangles are continuation patterns that indicate a breakout move in the same direction as the previous trend, whereas wedges indicate a reversal of the present trend. Wedges are more commonly encountered then triangles because rarely does the perfectly horizontal support or resistance line required for a triangle form around the price data on a chart.