Repetitive patterns are the key factors of technical analysis. They beware you of the past price actions, and let you predict the future ones. Do you wish of becoming a successful trader? It’s impossible without learning about patterns. “Wedge” is one of such patterns all traders and crypto enthusiast should learn. Stay with us to the end of this article to figure out what wedge is and what functions it has.
What is wedge in technical analysis?
Wedge is a well-known pattern in technical analysis that looks like an arrow. It is a reversal indicator, meaning that it signals a trend reversal. However, this reversal is not a long-term one. Wedge is a signal of a short-term, or a middle-term, trend reversal. A wedge consists of a support and a resistance line. This pattern has two types of “falling” and “rising”. Going through these two types independently gives you a better understanding of how it works.
A falling wedge forms at the end of a bearish trend. In a falling wedge, both support and resistance lines have a negative slope, and the slope of the resistance line is steeper than the slope of the support line. The price fluctuates between these two lines and moves towards the end of the wedge, till it finally breaks the resistance line. After that, you can wait for a bullish trend to begin. The falling wedge shows that traders/investors are no longer willing to sell their assets, and that the bearish trend is losing its strength. The overall shape of a falling wedge is as follows:
Unlike the falling wedge, the rising wedge forms at the end of a bullish trend. It consists of a support and a resistance line with a positive slope. The slope of the support line is usually steeper than the slope of the resistance line. When the price fluctuates between these two lines, moves towards the end of the wedge, and finally breaks the support line, we can consider it a signal of trend reversal. Therefore, we can wait for a bearish trend. The overall shape of a rising wedge is as follows:
The wedge pattern is a widely-used pattern in technical analysis. However, professional traders barely rely on a single pattern or indicator for their trades. They usually combine different tools, and generate a customized trading style. Have you ever used the wedge pattern in your trades? Have you combined it with other indicators? Which indicator have you found most efficient to be used along with the wedge pattern? Share your experiences with us.