A wedge pattern is formed on a stock market chart whenever the trend’s lines converge. This typically occurs when both lines have the same upward or downward trend but with different slopes. A falling wedge is traditionally believed to be a period of rest between upward movements.
Wedge patterns are displayed in a sideways movement and tend to form over longer periods of time, typically between three and six months.
Wedge Technical Analysis Classifications
In wedge technical analysis, patterns can often be confusing to read because they are classified as both continuation and reversal patterns. However, when the pattern is broken down to its base level, it is comprised of two wedges, a bullish falling wedge and a bearish rising wedge.
On the average wedge pattern, a move above the upper trendline is a continuation pattern whereas a move below the lower trendline is identified as a reversal pattern.
Falling & Rising Wedge Patterns
A falling wedge pattern signifies that one will usually see the price break upwards through the wedge as it moves into an uptrend. In a falling wedge, the upper trendline should always have a sharper slope than the wedge’s construction level. When the support trendline is made flatter as the wedge progresses, it is an indicator that selling pressure is waning.
A rising wedge pattern is usually an indicator that the security is likely to decline.
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