Wedge Formation

The wedge pattern can occur in either uptrends or downtrends, and is another type of triangular shape that captures the price movement for a time. In the same way as the flag, the wedge tends to tilt in the opposite direction to the trend, or against the trend. Here is an illustration of a falling wedge, which is normally considered bullish and occurs in an uptrend –

The wedge pattern can last from one to three months, which is similar to the triangle patterns. It can be a reversal pattern, but is normally seen within an existing trend, and acts as a continuation pattern. You would normally be guided by the idea that a falling wedge is a bullish sign, so if it occurred in a downtrend you might look for a reversal.

The wedge is a pattern which can be found on every timeframe, from monthly charts to intraday price action. There are two sorts of wedges:

• Falling wedges; they mostly complete after a sharp slump in prices and are a bullish.
• Rising wedges; these usually come before a violent downwards reversal. Their bearish bias is all the more pronounced since they are completed after a long period of time following a clear uptrend.

Here’s the similar rising wedge, which you expect to see as a continuation pattern in a downtrend –

This would usually be a bearish signal, commonly seen in a downtrend, but occasionally as a reversal in an uptrend.

As a general rule, continuation wedges tend to complete more quickly than reversal wedges. Even if a wedge acts a continuation pattern, the basic rules still apply: breakouts happen downwards for a rising wedge.

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