Wedge
A wedge is a pattern with converging trendlines that both slope in the same direction, signaling a potential reversal or continuation depending on context.
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How to Identify
Both the upper and lower trendlines slope in the same direction
The trendlines converge, creating a narrowing price range
Volume declines steadily as the wedge forms
A rising wedge slopes upward and is bearish, a falling wedge slopes downward and is bullish
Price touches each trendline at least twice to validate the pattern
Trading Rules
Entry Rules
- For a rising wedge, enter short when price breaks below the lower trendline
- For a falling wedge, enter long when price breaks above the upper trendline
- Confirm with volume expansion on the breakout
- Wait for a candle close beyond the trendline, not just a wick
Exit Rules
- Place stop-loss beyond the opposite trendline or beyond the last swing point
- Target the height of the wedge's widest point projected from the breakout
- Watch for momentum continuation after the initial target is reached
Measure the height of the wedge at its widest point (the beginning). Project that distance from the breakout point in the breakout direction.
For a rising wedge breakdown, stop above the last swing high within the wedge. For a falling wedge breakout, stop below the last swing low.
Journaling Tips
Record whether the wedge acted as a reversal or continuation pattern based on the prior trend
Note the number of touches on each trendline as more touches increase validity
Track the breakout direction and compare actual moves to the measured target
Wedges are versatile patterns that appear in both trending and counter-trend contexts. The key distinguishing feature is that both trendlines slope in the same direction, creating a narrowing shape that eventually resolves with a breakout.
Two Types of Wedges
Rising wedge: Both trendlines slope upward, but the lower trendline rises faster. This pattern is bearish and typically breaks down. It appears as a weakening upward move.
Falling wedge: Both trendlines slope downward, but the upper trendline declines faster. This pattern is bullish and typically breaks up. It appears as a weakening downward move.
The counterintuitive nature of wedges is what makes them powerful. A rising wedge looks bullish on the surface but is actually bearish, trapping buyers before the breakdown.
Context Determines Meaning
Wedges can be either reversal or continuation patterns:
- A rising wedge in an uptrend is a reversal signal
- A rising wedge in a downtrend is a continuation signal (bearish)
- A falling wedge in a downtrend is a reversal signal
- A falling wedge in an uptrend is a continuation signal (bullish)
Regardless of context, rising wedges resolve bearishly and falling wedges resolve bullishly.
Trading the Breakout
The breakout from a wedge is often explosive because the converging trendlines create compression. As the pattern tightens, traders on both sides get squeezed, and the breakout releases stored energy.
Entry criteria:
- Wait for a candle close beyond the trendline
- Confirm with volume expansion
- Set your stop on the opposite side of the wedge
Patience pays: Premature entries within the wedge risk getting stopped out on the next swing back to the opposite boundary.
Duration and Reliability
Wedges that form over longer periods tend to produce larger breakout moves. A daily wedge forming over 4-8 weeks is typically more significant than an hourly wedge forming over a few days.
Track the duration of each wedge you trade in your journal. Over time, you will identify the optimal timeframes and durations for your trading style.
Common Mistakes
Confusing a wedge with a channel because the boundaries converge in a wedge but are parallel in a channel
Trading in the direction of the wedge slope instead of the breakout direction
Entering before the breakout confirms with a close beyond the trendline
Frequently Asked Questions
Is a rising wedge always bearish?
Rising wedges are bearish in most contexts. When they form during an uptrend, they signal a potential reversal. When they form during a downtrend, they act as a continuation pattern before further decline.
What makes wedges different from triangles?
In a wedge, both trendlines slope in the same direction. In a symmetrical triangle, the trendlines slope toward each other from opposite directions. In ascending and descending triangles, one side is flat.
How many touches are needed to validate a wedge?
Each trendline should be touched at least twice, giving you a minimum of four total touch points. More touches strengthen the pattern's validity and improve breakout reliability.
Start Tracking Your Patterns
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