A wedge is a price pattern marked by converging trend lines on a chart.
The basic wedge pattern may be either a rising wedge or a falling wedge. Though there are also broadening wedge formations.
Rising Wedge
A rising wedge is a bearish pattern. It is formed when two trend lines are sloping up and the price is making higher highs and higher lows.
The pattern is considered valid when both the support and resistance lines are touched at least three times alternatively.
The price target of a rising wedge is the same height as the wedge measured from the breakout.
Rising Wedge Example using Fibonacci
- The primary target of a rising wedge pattern using Fibonacci retracement is the 50% retrace.
- The secondary target of a rising wedge pattern using Fibonacci retracement is at the 61.8% retrace (golden retrace)
In the example below you can see that Bitcoin retraced to the 0.618 golden retrace level (in confluence with the height of the wedge target), before pulling back and continuing lower later.
Falling Wedge
A falling wedge is a bullish pattern. It formed when two trend lines are sloping down and the price is making lower highs and higher lows.
The pattern is considered valid when both the support and resistance lines are touched at least three times alternatively.
The price target of a falling wedge is the same height as the wedge measured from the breakout.
Falling Wedge Example using Fibonacci Retracement
- The primary target of a falling wedge pattern using Fibonacci retracement is the 50% retrace.
- The secondary target of a falling wedge pattern using Fibonacci retracement is at the 61.8% retrace (golden retrace)
In the example below you can see that Bitcoin retraced to the 0.618 golden retrace level, before pulling back and continuing higher later.
Broadening Wedge (Broadening Formation)
The standard broadening wedge is symmetrical and is a reversal pattern. It consists of increasing higher highs and lower lows until a breakout occurs. If this pattern appears at the top of an uptrend it is often called a Broadening Top. Likewise in a downtrend, it is called a Broadening Bottom.
Broadening Top
The price target of a broadening top is the same height as the wedge measured from the breakout.
Broadening Bottom
The price target of a broadening bottom is the same height as the wedge measured from the breakout.
Ascending Broadening Wedge
An ascending broadening wedge is a bearish pattern.
The ascending broadening wedge should have at least three touches on both sides of the trendline.
The price target of a ascending broadening wedge is the same height as the wedge measured from the breakout.
Right-Angled Ascending Broadening Wedge
A right-angled ascending broadening wedge is a bearish pattern but can often break upwards too.
The right-angled ascending broadening wedge should have at least five touches total. Three peaks or three valleys should be present with two or more touches on the other side.
The price target of a right-angled ascending broadening wedge is the same height as the wedge measured from the breakout.
Descending Broadening Wedge
The price target of a descending broadening wedge is the same height as the wedge measured from the breakout.
Right-Angled Descending Broadening Wedge
A right-angled descending broadening wedge is a bullish pattern but can often break downwards too.
The right-angled descending broadening wedge should have at least five touches total. Three peaks or three valleys should be present with two or more touches on the other side.
The price target of a right-angled descending broadening wedge is the same height as the wedge measured from the breakout.
