RiskPicksWhat is a Wedge Pattern?
A wedge is a chart pattern where price moves between two converging trendlines that both slope in the same direction. Unlike triangles (where one line is flat), both lines of a wedge are angled. Wedges are typically reversal patterns.
Rising Wedge (bearish)
- Both trendlines slope upward, but the lower line rises more steeply than the upper line
- Price is making higher highs and higher lows, but the range is narrowing
- This shows that buyers are losing momentum even as price grinds higher
- The breakdown below the lower trendline signals the reversal
Falling Wedge (bullish)
- Both trendlines slope downward, but the upper line falls more steeply than the lower line
- Price is making lower highs and lower lows, but the range is narrowing
- This shows that sellers are losing momentum even as price drifts lower
- The breakout above the upper trendline signals the reversal
Trading wedges
- Wait for the break: do not trade inside the wedge. Wait for a clear break of one of the trendlines with volume
- Target: measure the widest part of the wedge and project it from the breakout point
- False breaks: wedges can produce false breakouts. Wait for a candle close outside the pattern before entering
A rising wedge during an uptrend is a warning that the trend is exhausting itself. A falling wedge during a downtrend is a sign that sellers are running out of steam. Both are setups for a reversal.