1. Analyzing Chart Patterns: Introduction
  2. Analyzing Chart Patterns: Why Charts?
  3. Analyzing Chart Patterns: Head And Shoulders
  4. Analyzing Chart Patterns: Cup And Handle
  5. Analyzing Chart Patterns: Double Top And Double Bottom
  6. Analyzing Chart Patterns: Triangles
  7. Analyzing Chart Patterns: Flags And Pennants
  8. Analyzing Chart Patterns: The Wedge
  9. Analyzing Chart Patterns: Gaps
  10. Analyzing Chart Patterns: Triple Tops And Bottoms
  11. Analyzing Chart Patterns: Round Bottoms
  12. Analyzing Chart Patterns: Conclusion


By Chad Langager and Casey Murphy, senior analyst of ChartAdvisor.com


The wedge chart pattern signals a reverse of the trend that is currently formed within the wedge itself. Wedges are similar in construction to a symmetrical triangle in that there are two trendlines - support and resistance - which band the price of a security.

The wedge pattern differs in that it is generally a longer-term pattern, usually lasting three to six months. It also has converging trendlines that slant in an either upward or downward direction, which differs from the more uniform trendlines of triangles.

There are two main types of wedges – falling and rising – which differ on the overall slant of the pattern. A falling wedge slopes downward, while a rising wedge slants upward.

Falling Wedge
The falling wedge is a generally bullish pattern signaling that one will likely see the price break upwards through the wedge and move into an uptrend. The trendlines of this pattern converge, with both being slanted in a downward direction as the price is trading in a downtrend.


Figure 1: Falling wedge pattern


From the above, one can see that a wedge is similar to the triangles, in that the price movement bounces between the two trendlines, which are bounding the price movement.

Another thing to look at in the falling wedge is that the upper (or resistance) trendline should have a sharper slope than the support level in the wedge construction. When the lower (or support) trendline is clearly flatter as the pattern forms, it signals that selling pressure is waning, as sellers have trouble pushing the price down further each time the security is under pressure.

The price movement in the wedge should at minimum test both the support trendline and the resistance trendline twice during the life of the wedge. The more times it tests each level, especially on the resistance end, the higher quality the wedge pattern is thought to be.

The buy signal is formed when the price breaks through the upper resistance line. This breakout move should be on heavier volume, but due to the longer-term nature of this pattern, it's important that the price has successive closes above the resistance line.

Rising Wedge
Conversely, a rising wedge is a bearish pattern that signals that the security is likely to head in a downward direction. The trendlines of this pattern converge, with both trendlines slanted in an upward direction.
Figure 2: Rising wedge pattern


Again, the price movement is bounded by the two converging trendlines. As the price moves towards the apex of the pattern, momentum is weakening. A move below the lower support would be viewed by traders as a reversal in the upward trend.

As the strength of the buyers weakens (exhibited by their inability to take the price higher), the sellers start to gain momentum. The pattern is complete, with the sellers taking control of the security, when the price falls below the supporting trendline.


Analyzing Chart Patterns: Gaps
Related Articles
  1. Investing

    Tales From The Trenches: The Rising Wedge Breakdown

    Learn how to short this reversal pattern with a favorable risk/reward ratio.
  2. Investing

    Weatherford International May Drop Despite Uptrend

    Weatherford International stock has been rising but may be due to drop soon.
  3. Investing

    Introduction To Technical Analysis Price Patterns

    To "find your game" in technical analysis, you need to be able to recognize reversals and continuations as they form.
  4. Trading

    These Stocks are Trending Higher (CNI, MU, SIX)

    These stocks are in uptrends and trading near trendline support, offering a potential buying opportunity.(CNI, MU, SIX)
  5. Small Business

    Facebook Shackled by Weak Tech Market (FB)

    Big tech and market leader Facebook now shows equal odds of trading above 130 or below 110.
  6. Investing

    The Utility Of Trendlines

    Trendlines give an investor a good idea of the direction an investment might move in. Discover how to make them work for your portfolio.
  7. Trading

    Currency ETFs Near Long-term Breakout Levels

    These currency ETFs could be heading into the next wave of the uptrend, but beware of resistance. (FXA,FXC,FXY)
Frequently Asked Questions
  1. How do you calculate r-squared in Excel?

    Calculate R-squared in Microsoft Excel by creating two data ranges to correlate. Use the Correlation formula to correlate ...
  2. What is the Difference Between International Monetary Fund and the World Bank?

    Learn about the International Monetary Fund and the World Bank and how they are differentiated by their respective functions ...
  3. Where Did the Bull and Bear Market Get Their Names?

    The terms bull and bear are used to describe general actions and attitudes, or sentiment, either of an individual (bear and ...
  4. What's the difference between Google's GOOG and GOOGL stock tickers?

    Learn the difference between Google's GOOG and GOOGL ticker symbols. Splitting shares into classes prevents management from ...
Trading Center