What it means
A wedge is a narrowing channel where both lines slope the same way. In a rising wedge both lines rise but the lower one rises faster; in a falling wedge both fall but the upper one falls faster.
A rising wedge is usually read as bearish, a falling wedge as bullish.
Why traders use it
In a rising wedge each new high adds less than before: momentum is fading even though price is rising. The break of the lower line is a structural shift.
Chart examples
Rising wedge
Falling wedge
How to identify it objectively
- 1Two converging lines sloping in the same direction.
- 2At least two touches on each.
- 3Rising wedge breaks down; falling wedge breaks up.
- 4Confirm with a close beyond the line.
Bullish use
- 1Falling wedge in a decline or pullback.
- 2Close above the upper line.
- 3Stop below the last low.
Bearish use
- 1Rising wedge in a rally.
- 2Close below the lower line.
- 3Stop above the last high.
What confirms it
- The break closes beyond the line.
- Structure break (CHoCH) at the same time.
What invalidates it
- A close back inside the wedge.
- A break in the "wrong" direction with follow-through.
How a hypothetical setup is built
Entry
On the break close or a retest of the line.
Stop
Beyond the wedge's last swing.
Target
The start of the wedge.
A hypothetical illustration of how the concept is turned into a plan, not a recommendation. Practise it on a paper account first.
Related concepts
- Chart PatternsTriangle Patterns
- Chart PatternsBull and Bear Flags (and Pennants)
- Market StructureChange of Character (CHoCH)
Historical testing
Not tested on The Tradeskill.
Limitations: when it fails
- Wedges can break either way.
- Line drawing is subjective.
- Often confused with channels and triangles.
Knowledge check
Pick an answer to see the explanation. Nothing is saved.