Wedge

DEFINITION of 'Wedge'

In technical analysis, a security price pattern where trend lines drawn above and below a price chart converge into an arrow shape. Wedge shaped patterns are thought by technical analysts to be useful in analyzing a short to intermediate term reversal of what the analyst feels to be the major price trend.

BREAKING DOWN 'Wedge'

Once the price breaks out of the wedge, it is expected to return to the major trend. Technical analysts see a 'breakout' of this wedge pattern as either bullish (on a breakout above the upper line) or bearish (on a breakout below the lower line). A wedge shape pointing upwards (rising wedge) is used in analyzing an upward price trend within an overall downward price trend. A level wedge is considered a period of consolidation, which will not reverse the current major trend. Finally a wedge pointing downwards (falling wedge) is used to analyze a downward price trend within an overall upward price movement.

RELATED TERMS
  1. Resistance (Resistance Level)

    A chart point or range that caps an increase in the level of ...
  2. Triangle

    A technical analysis pattern created by drawing trendlines along ...
  3. Technical Analysis

    A method of evaluating securities by analyzing statistics generated ...
  4. Support (Support Level)

    The price level which, historically, a stock has had difficulty ...
  5. Trendline

    A line that is drawn over pivot highs or under pivot lows to ...
  6. Return on Market Value of Equity ...

    Return on market value of equity (ROME) is a comparative measure ...
Related Articles
  1. Active Trading Fundamentals

    Triangles: A Short Study In Continuation Patterns

    Learn how to read these formations of horizontal trading patterns.
  2. Charts & Patterns

    Continuation Patterns: In-Depth Look At Triangles

    We take a closer look at ascending and descending triangles to help traders predict the ultimate breakout direction.
  3. Charts & Patterns

    Continuation Patterns: An Introduction

    Those random movements in the charts actually form patterns. Learn the basics of what these patterns are.
  4. Charts & Patterns

    Continuation Patterns - Part 2

    Take a closer look at triangles, which appear in ascending, descending and symmetrical forms.
  5. Active Trading

    Tales From The Trenches: The Rising Wedge Breakdown

    Learn how to short this reversal pattern with a favorable risk/reward ratio.
  6. Chart Advisor

    Sector Headwinds Buffeting First Solar (FSLR, TAN)

    First Solar has entered a new downtrend after failing to break out above two-year resistance.
  7. Chart Advisor

    Better Buy: Home Depot or Lowe's? (HD, LOW)

    Home Depot and Lowe’s have risen to resistance levels that could yield fresh trend advances.
  8. Chart Advisor

    3 Short Sales in the Apple Ecosystem (AAPL, SWKS)

    Deteriorating sentiment should offer profitable short sales on the key Apple suppliers.
  9. Chart Advisor

    Amazon Levels to Watch After Earnings (AMZN)

    An Amazon rally above 650 after earnings should open the door to a test of the bull market high.
  10. Chart Advisor

    Nasdaq-100 Weakness Waving Red Flags (QQQ, SPY)

    The Nasdaq-100 is lagging blue chip and small cap indices, signaling a bearish divergence that could end the recovery wave.
RELATED FAQS
  1. What's a good forex strategy to use when spotting a Wedge-shaped Pattern?

    Find out more about the rising and falling wedge formations and how to implement a forex strategy when you spot these patterns ... Read Answer >>
  2. How effective is creating trade entries after spotting a wedge-shaped pattern?

    Find out how to create entries in wedge shaped patterns, and learn how traders use rising and falling wedges to identify ... Read Answer >>
  3. What is a common strategy traders implement when using the Triple Exponential Average ...

    Learn a common strategy traders use with triple exponential average and the VWAP cross to identify continuations and reversals ... Read Answer >>
  4. How effective is creating trade entries after spotting a Wolfe Wave pattern?

    Learn how to identify the Wolfe wave pattern and how traders use this to create long trade entries by analyzing bullish Wolfe ... Read Answer >>
  5. How do I build a profitable strategy when spotting wedge-shaped patterns?

    Learn how to trade wedge shaped patterns and when to buy or sell wedge breakouts with support and resistance levels to create ... Read Answer >>
  6. What is Fibonacci retracement, and where do the ratios that are used come from?

    Fibonacci retracement is a very popular tool among technical traders and is based on the key numbers identified by mathematician ... Read Answer >>
Hot Definitions
  1. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  2. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
  3. Generally Accepted Accounting Principles - GAAP

    The common set of accounting principles, standards and procedures that companies use to compile their financial statements. ...
  4. DuPont Analysis

    A method of performance measurement that was started by the DuPont Corporation in the 1920s. With this method, assets are ...
  5. Call Option

    An agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument ...
  6. Economies Of Scale

    Economies of scale is the cost advantage that arises with increased output of a product. Economies of scale arise because ...
Trading Center