Wedge Pattern

What Is a Wedge Pattern?

A wedge pattern forms when two converging trendlines both slope in the same direction, either up or down. This distinguishes wedges from triangles, where the trendlines slope in opposite directions. The convergence creates a narrowing price range that builds energy for an eventual breakout.

A rising wedge has both lines angled upward. Despite the upward drift, it is typically bearish. A falling wedge has both lines angled downward, yet it is typically bullish. The counter-intuitive direction comes from the internal dynamics: in a rising wedge, each successive rally is weaker, and in a falling wedge, each successive decline is shallower.

How Traders Trade Wedge Patterns

The entry signal is a break of the trendline that the pattern is leaning against. For rising wedges, the breakdown through the lower trendline triggers short entries. For falling wedges, the breakout above the upper trendline triggers long entries.

Volume typically declines during the wedge formation as the range narrows and participation wanes. An expansion of volume on the breakout confirms the move. If volume remains low on the breakout, the signal is less reliable and the risk of a false break increases.

The measured move target is the widest part of the wedge (measured vertically between the trendlines at the wedge's base) projected from the breakout point. This provides a minimum expected move, though strong breakouts from well-formed wedges often exceed this target significantly.

Wedge vs. Triangle

Wedges are sometimes confused with triangles, but the distinction is important. In a symmetrical triangle, one trendline slopes up and the other slopes down, converging toward a neutral point. In a wedge, both lines slope the same direction. Ascending and descending triangles have one horizontal line and one sloping line. The directional bias and trading approach differ among these patterns.

Wedges also tend to take longer to form than triangles and are more commonly associated with trend reversals. A well-formed wedge after an extended trend is one of the more reliable reversal signals in chart pattern analysis.