Wedges

Rising Wedge

A Rising Wedge is a bearish pattern that begins wide at the bottom and contracts as prices move higher and the trading range narrows. It can occur as a reversal pattern at the end of an uptrend, or as a continuation pattern during a downtrend. In both cases, it is bearish. The pattern is completed when the price breaks down through the lower trendline, indicating that a reversal or continuation of the prior downtrend is about to occur.

Falling Wedge

The Falling Wedge is a bullish pattern that begins wide at the top and contracts as prices move lower. This pattern can form as a reversal pattern at the end of a downtrend, or as a continuation pattern during an uptrend. In both cases, it is bullish. The pattern is completed when the price breaks up through the upper trendline, indicating that a reversal or continuation of the prior uptrend is imminent.

In both patterns, the wedge shape forms due to lower highs and higher lows (for rising wedges) or higher lows and lower highs (for falling wedges). The breakout direction of the wedge can give a potential signal for the future direction of the price trend. The volume generally diminishes as the wedge evolves, and an increase in volume on the breakout can help to confirm the pattern.