Wedge Patterns Trading

Wedge patterns are powerful reversal and continuation signals used by institutional traders worldwide.

What is a Wedge Pattern?


Definition

• Converging trendlines with both sloping same direction
• Price compresses into a narrowing range
• Volume typically decreases during formation
• Breakout direction signals the trade

Rising Wedge (Bearish)

Formation

• Both trendlines slope upward
• Upper trendline slopes less steeply
• Price makes higher highs and higher lows
• But range narrows over time

Trading Rules

• Wait for break below lower trendline
• Volume spike confirms breakout
• Target: Height of wedge at widest point
• Stop loss: Above last swing high inside wedge

Where It Appears

• After an uptrend (reversal signal)
• During a downtrend (continuation pattern)
• Near resistance levels

Falling Wedge (Bullish)

Formation

• Both trendlines slope downward
• Lower trendline slopes more steeply
• Price makes lower highs and lower lows
• Range narrows as pattern develops

Trading Rules

• Wait for break above upper trendline
• Volume confirmation essential
• Target: Height of wedge projected from breakout
• Stop loss: Below last swing low inside wedge

Where It Appears

• After a downtrend (reversal signal)
• During an uptrend (continuation pattern)
• Near support levels

Key Differences from Triangles

• Triangles have one flat trendline
• Wedges have both lines sloping same direction
• Wedges typically take longer to form
• Wedge breakouts tend to be more explosive

Common Mistakes

1. Entering before confirmed breakout
2. Ignoring volume on breakout
3. Confusing wedges with channels
4. Not waiting for retest of broken trendline
5. Setting stops too tight