A Rising Wedge is a bearish chart pattern that forms during a downtrend in price action that has upward trend lines. A Falling Wedge is a bullish chart pattern that forms during an uptrend in price action with downward trend lines. Wedge patterns can be continuation or reversal patterns depending on which way they breakout. A wedge pattern generally forms and moves in the opposite direction of the longer-term trend on a chart and shows a short-term reversal that usually fails and the previous trend resumes.
Rising Wedge Pattern
The rising wedge chart pattern can fit in the continuation or reversal category. When it’s a continuation pattern it will trend up, however the slope in the wedge will be against the overall market downtrend.
- The rising wedge is a bearish pattern regardless of what kind of market it appears in.
- The rising wedge is a bearish chart pattern that begins with a wide trading range at the bottom and contracts to a smaller trading range as prices trend up.
- This price action forms an ascending cone shape that trends higher as the vertical highs and vertical lows move together to converge.
- The bearish bias in this pattern can’t be signaled until a breakdown of the ascending support to show this is a reversal pattern from highs in price.
- This is a longer-term pattern that generally forms over a one-to-six-month timeframe.
- The new highs set in this pattern create higher highs, but the new highs should become less in magnitude. Less strength in highs indicate a decrease in the strength of buying pressure and should create an upper trend line of resistance with less ascending slope than the lower line of support.
When it’s a reversal pattern, the rising wedge trends up when the overall market is in a downtrend.
Falling Wedge Pattern
- The bullish wedge pattern shows price action falling in a downswing but breaks its descending upper resistance trend line to reverse higher into an uptrend.
- The falling wedge pattern can fit in the continuation or reversal category. When it is a continuation pattern it will trend down, however the slope in the wedge will be against the overall market uptrend. When it is a reversal pattern, the falling wedge trends down when the overall market is in a downtrend but breaks to the upside.
- The falling wedge has the potential to turn into a bullish pattern regardless of what kind of market it occurs in.
- The falling wedge is a bullish chart pattern that begins with a wide trading range at the top and contracts to a smaller trading range as prices trend down.
- This price action forms a descending cone shape that trends lower as the vertical highs and vertical lows move together to converge.
- The bullish bias in this pattern will not be signaled until a breakout back above the descending resistance to show this is a reversal pattern from lows in price.
- This is usually a longer-term pattern that generally forms over a three to six-month timeframe but can also appear on shorter time frames.
- This pattern creates lower lows, but the new lows should become less in magnitude. Less depth in lows indicate a decrease in the strength of selling pressure and should create a lower trend line of support with less declining slope than the upper line of resistance.
Bearish Wedge vs Bullish Wedge
The Rising Wedge should be traded as a bearish pattern by selling short to the downside as the previous downtrend resumes signaled by a breakdown of the lower trend line support.
The Falling Wedge should be traded as a bullish pattern by buying the breakout to the upside as the previous uptrend resumes signaled by a break of price above the upper trend line resistance.
As with any trade, proper position sizing and a stop loss should be used to minimize losing trades. Patterns are only probabilities of a chart moving in the path of least resistance not a perfect prediction, profits come from coming losses small and maximizing winning trades not winning every time.