The Falling and Rising Wedge Pattern
The wedge pattern is commonly observed on financial price charts, characterized by a narrowing price
range coupled with either an upward (rising wedge) or downward (falling wedge) trend. It represents
a temporary pause in the primary trend, where trading activity consolidates between converging trend
lines. Typically taking 3 to 4 weeks to form, wedges differ from triangles in that both boundary lines
slope uniformly in the same direction.
The falling wedge pattern occurs when the market forms lower lows and lower highs within a
contracting range. In a downtrend, it signals a potential reversal as the narrowing range suggests
weakening downward momentum. Conversely, in an uptrend, it is viewed as a bullish pattern
indicating that the correction is losing strength, potentially leading to a continuation of the uptrend.
In a falling wedge, both boundary lines slope downwards from left to right, with the upper line
descending more steeply than the lower line. Volume diminishes as trading activity slows due to
narrowing price movements. Once prices break out of the falling wedge’s boundaries, they often
consolidate sideways before resuming the prevailing trend.
The rising wedge pattern forms when the market shows higher highs and higher lows while the
trading range contracts. In an uptrend, this pattern signals a potential reversal as the narrowing range
suggests weakening upward momentum.
Conversely, in a downtrend, it indicates a bearish continuation as the contracting range suggests the
correction is losing momentum, potentially leading to a resumption of the downtrend. Both boundary
lines of a rising wedge slope upwards from left to right, with the lower boundary rising at a steeper
angle than the upper one.
Typically, prices decline after breaking through the lower boundary line. Volume tends to decrease
with each new price wave, indicating weakening demand at higher price levels.
A rising wedge is more reliable in a bearish market context. However, in a bullish trend, what appears
to be a rising wedge might actually be a flag or a pennant pattern.
