Technical analysts apply wedge patterns to depict trends in the market. How does a Wedge Pattern in Technical Analysis work? Wedges, which are either continuation or reversal technical analysis chart patterns, indicate a pause in the current trend and signify that traders are still deciding where to take the pair next. Wedges are an easy-to-understand chart pattern, and when they diverge from a prior pattern, there are favorable risk/reward trading potentials.

The breakout direction from the wedge determines whether the price resumes the previous trend or moves in the same direction. What does a Wedge Pattern in Technical Analysis indicate?Ī wedge pattern is a popular trading chart pattern that indicates possible price direction changes or continuations. The benefits of using a wedge pattern in technical analysis include its ability to give traders a clear visual indication of a likely trend reversal, enabling them to initiate or exit positions at a suitable period. The height of the wedge pattern often plays an important role in placing the targets. They place stop-losses on the opposite side of the wedge. Traders wait for a breakout to occur above or below the wedge, to enter the trade.

A rising or falling slant heading in the same direction defines this pattern. The wedge pattern has three common elements observed in each scenario: firstly, the trendlines that are converging towards each other secondly, the volume tends to decline as the price progresses through the pattern and finally, there is a breakout from one of the trend lines. The characteristic feature of the pattern is the narrowing price range between two trend lines that are converging towards each other, creating a wedge shape.Ī contracting price range paired with either an upward price trend (known as a rising wedge) or a downward price trend (known as a falling wedge) defines the pattern. The wedge pattern is frequently seen in traded assets like stocks, bonds, futures, etc. A wedge pattern is a price pattern identified by converging trend lines on a price chart.

Falling wedge target