What is a Wedge Pattern?

What is a Wedge Pattern?

A wedge is a chart pattern characterized by two converging trendlines that both slope in the same direction. Unlike triangles where one line is horizontal, wedge boundaries both angle up or down, creating a narrowing price channel that signals diminishing momentum and impending reversal or continuation depending on context.

Types of Wedges

• Rising wedge: Both trendlines slope upward but converge. Typically bearish—signals distribution as buyers lose strength despite higher highs
• Falling wedge: Both trendlines slope downward but converge. Typically bullish—signals accumulation as sellers exhaust despite lower lows

Wedge Characteristics

• Converging trendlines: Range narrows progressively as buyers and sellers battle, with one side gradually losing momentum
• Volume contraction: Trading activity dries up as price compresses, then surges on breakout
• Counterintuitive breaks: Wedges typically break opposite to their slope direction—rising wedges break down, falling wedges break up
• Duration: Wedges form over weeks to months; shorter patterns are less reliable

Trading Wedge Patterns

• Draw precise trendlines through at least three touches on each boundary to validate the pattern
• Set price alerts as wedge approaches the apex where breakouts typically occur
• Confirm breakout with expanding volume, momentum indicator shifts, or a strong close beyond the pattern
• Enter on breakout or wait for retest of broken boundary for better risk/reward
• Project targets using the widest part of the wedge (base) measured from the breakout point
• Place stops inside the wedge just beyond the opposite trendline

Advanced Guidance

Build a repeatable, rules‑based process so decisions are consistent across sessions and instruments. Start from context (higher‑timeframe structure, positioning, macro tone), then define precise triggers and invalidation on execution charts. Track spread and depth so your order type matches conditions. Pre‑compute scenarios (breakout, fakeout, mean‑revert) and map actions for each to reduce hesitation.

Execution Framework

• Plan entries at levels with confluence (structure, momentum, time‑of‑day).
• Place stops beyond the logical invalidation, not arbitrary distances.
• Target at least 2–3R; scale out methodically and trail remainder.
• Avoid thin liquidity windows unless the setup explicitly requires it.
• Record slippage and spreads; poor fills can erase edge.

Review Loop

• Journal setups by session and pair to learn where they excel.
• Tag trades by catalyst (news, trend continuation, range breakout).
• Recalculate expectancy monthly; prune underperforming variants.

Risk Controls

Keep daily loss limits, reduce size after consecutive losses, and pause during regime shifts. Survival enables compounding; treat discipline and execution quality as part of your edge.