Wedge Pattern Trading

In a wedge, BOTH trendlines slope in the same direction (both up for rising, both down for falling). In a triangle, the lines slope in opposite directions (symmetrical) or one is flat (ascending/descending).

Even though prices rise, each successive high gains less ground relative to the lows (the lines converge). This shows buyers are weakening. Eventually sellers take over and price breaks down.

Typically 3-6 weeks on daily charts. Shorter patterns (2 weeks) can work but may be less reliable. Longer patterns (2-3 months) are rarer but more significant.

Enter when price CLOSES beyond the trendline in the expected direction. Rising wedge: close below lower line. Falling wedge: close above upper line. Don't enter on intraday pierces.

Place stop beyond the opposite trendline or the most recent swing inside the pattern. Add a small buffer (1-2% or 0.5 ATR) to avoid being stopped by noise.

After breaking out, price often returns to test the broken trendline. In a falling wedge, price breaks above upper line, pulls back to test it as support, then continues higher. This offers a second entry chance with tighter stop.

Volume should decline during wedge formation (showing exhaustion) and expand on breakout (showing conviction). High volume during the wedge or low volume on breakout are warning signs.

RSI divergence confirms the exhaustion wedges represent. In rising wedge: RSI making lower highs (bearish divergence). In falling wedge: RSI making higher lows (bullish divergence). Divergence strengthens the signal.

Yes. Rising wedge in a downtrend = continuation (bearish). Falling wedge in an uptrend = continuation (bullish). These represent counter-trend consolidations before the main trend resumes.

Higher TF shows context. Rising wedge on daily is strongest when weekly shows extended overbought uptrend (reversal setup). Falling wedge is strongest when weekly shows extended oversold downtrend.

The move after a wedge breakout often equals or exceeds the move that led into the wedge. Measure the price move before the wedge; project from breakout. This provides an extended target beyond the standard measured move.

Define quantitative rules: identify swing points, draw lines connecting them, verify both lines slope same direction, confirm convergence, check declining volume. Use angle calculations to verify slope direction.

Falling wedge: buy calls or bull call spreads on breakout. Rising wedge: buy puts or bear put spreads on breakdown. Use 45-60 DTE. Spreads define risk. Pre-breakout straddles can capture volatility expansion.

When a wedge breaks the 'wrong' way (rising wedge breaks up, falling wedge breaks down), trade the failure. Enter in the failed direction with stop at the failed breakout extreme. Failed patterns often produce strong moves.

Limit to 4-6 concurrent wedges. Diversify across sectors. Risk 1-2% per trade, max 8% total. Track by type (rising/falling) and context (reversal/continuation). Prioritize patterns with quality scores (divergence, volume, TF alignment).