A wedge is a chart pattern in which price moves between two trendlines that slope in the same direction and gradually converge. A rising wedge has two upward-sloping lines and usually signals a move down when price breaks below the lower line. A falling wedge has two downward-sloping lines and usually signals a move up when price breaks above the upper line. The expected target equals the height of the widest part of the wedge.
Key takeaways
- The rising wedge is usually bearish; the falling wedge is usually bullish.
- A narrowing wedge shows fading momentum, and the breakout usually comes before the lines meet.
- Enter after a candle closes outside the wedge, with the stop beyond the last high or low inside it.
- The target equals the height of the widest part of the wedge, measured from the breakout.
Table of contents
What is a wedge pattern in technical analysis?
A wedge is a compression pattern: price trades between a support line and a resistance line that slope in the same direction and move closer together over time. Each swing is smaller than the one before, which shows that the side driving the move is losing strength. Wedges often end with a sharp move against the slope of the wedge.
Wedges appear in forex, gold, stocks, and crypto. A wedge can be a reversal pattern when it forms at the end of a trend, or a continuation pattern when it forms as a correction inside an existing trend.
What is a rising wedge?
A rising wedge is formed by two rising lines, with the lower line steeper than the upper one, so they converge. Price makes higher highs and higher lows, but each new high barely exceeds the previous one, a sign that buyers are getting weaker. It gives a sell signal when price closes below the lower line, whether it appears at the top of an uptrend or as a bounce inside a downtrend.
What is a falling wedge?
A falling wedge is the mirror image: two falling, converging lines, with price making lower highs and lower lows on weakening momentum. It gives a buy signal when price closes above the upper line, whether it appears at the bottom of a downtrend or as a pullback inside an uptrend.
What is the difference between a rising wedge and a falling wedge?
| Rising wedge | Falling wedge | |
|---|---|---|
| Trendlines | Both rising and converging | Both falling and converging |
| Usual signal | Sell (bearish) | Buy (bullish) |
| Entry | Close below the lower line | Close above the upper line |
| Stop loss | Above the last high inside the wedge | Below the last low inside the wedge |
| Target | Widest part subtracted from the breakout | Widest part added to the breakout |
| As a reversal | At the end of an uptrend | At the end of a downtrend |
| As a continuation | A bounce inside a downtrend | A pullback inside an uptrend |
What is the difference between a wedge, a triangle, and a channel?
| Pattern | Shape of the lines | What it means |
|---|---|---|
| Wedge | Same direction, converging | Momentum is fading; a move against the slope is likely |
| Symmetrical triangle | One rising, one falling, meeting at a point | Indecision; the breakout can go either way |
| Ascending or descending triangle | One flat, one sloping | Pressure on the flat level and a likely break through it |
| Channel | Parallel, same direction | A steady trend that isn’t weakening; trade with the slope |
How do you trade a wedge pattern step by step?
- Identify the trend contextDecide whether the wedge forms at the end of a trend (reversal) or inside a correction (continuation). Continuation wedges in the direction of the bigger trend are usually stronger.
- Draw both lines with at least two touches eachMore touches, ideally five in total, make the pattern clearer. Make sure the lines really converge; otherwise it is a channel.
- Watch for fading momentumFalling volume or an RSI divergence inside the wedge supports a breakout in the expected direction.
- Enter after a candle closes outside the wedgeDon’t enter on a touch of the line. Some traders wait for price to retest the broken line from the other side.
- Place the stop and set the targetPut the stop beyond the last high or low inside the wedge, and target the height of the widest part of the wedge from the breakout.
Worked example: a rising wedge on gold (XAU/USD)
The pattern: gold climbs inside a rising wedge that starts between 3,850 and 3,930, so the widest part is $80. With each swing the wedge narrows and volume falls.
The trade: a 4-hour candle closes below the lower line at 3,958, so you sell, with the stop loss above the last high inside the wedge at 3,992 ($34 of risk). The target is 3,958 − 80 = 3,878, rounded to 3,880 ($78 of potential reward), a risk-to-reward ratio of about 1:2.3.
What are the most common wedge trading mistakes?
- Confusing a wedge with a channelIf the lines are parallel, it is a channel, not a wedge, and channels usually favor trend continuation, not reversal.
- Entering before the breakSelling inside a rising wedge before the lower line breaks exposes you to the rise continuing longer than you expect.
- Drawing a wedge with too few touchesA line with one touch isn’t a line. Wait for at least two touches on each side.
- Waiting for the lines to meetThe strongest breakouts usually come between two-thirds and three-quarters of the way through the wedge. If price reaches the apex without breaking, the signal weakens.
- Placing the stop too tightRetests of the broken line are normal, and a very tight stop gets hit before the real move starts.
- Ignoring the higher timeframeA rising wedge on a small timeframe inside a strong daily uptrend is usually a weak sell signal.
Rising and falling wedge FAQ
What is a wedge pattern in technical analysis?
A wedge is a compression chart pattern in which price moves between two trendlines that slope in the same direction and gradually converge, showing that momentum is fading. It often ends with a sharp move against the slope of the wedge.
Is a rising wedge bullish or bearish?
A rising wedge is usually bearish, even though price rises inside it, because the narrowing shape shows that buyers are getting weaker. The sell signal comes when price closes below the lower line.
Is a falling wedge bullish?
Yes. A falling wedge is usually bullish, and the buy signal comes when price closes above the upper line of the wedge.
How do you calculate the target of a wedge pattern?
Measure the height of the widest part of the wedge, at its start, then subtract it from the breakout point for a rising wedge, or add it to the breakout point for a falling wedge.
Where should I place the stop loss on a wedge?
For a rising wedge, place the stop above the last high inside the wedge. For a falling wedge, place it below the last low inside the wedge.
What is the difference between a wedge and a triangle?
In a wedge, both lines slope in the same direction and converge. In a symmetrical triangle, one line rises and the other falls, and in an ascending or descending triangle, one of the lines is flat.
Is a wedge a reversal or a continuation pattern?
It can be both. It is a reversal pattern when it forms at the end of a trend, and a continuation pattern when it forms as a correction inside an existing trend, such as a falling wedge inside an uptrend.
Our daily analysis spots chart patterns on major forex pairs and gold, and our professional course covers them in depth.
Further reading: Wedge Pattern — Investopedia
Risk warning: This article is for educational purposes only and is not investment advice. Trading forex, gold, and other leveraged products carries a high risk of losing your capital.