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Key Takeaways
- A wedge has two converging boundaries that slope in the same direction.
- In a rising wedge the lower line rises faster; in a falling wedge the upper line falls faster.
- The selected rising-wedge setup activates below support; its falling-wedge counterpart activates above resistance.
- This example projects the $3.50 initial boundary separation from the $112.90 breakdown close to $109.40.
- An assumed $112.90 short entry and $113.61 stop reference give $0.71 distance and a 4.93 target-distance ratio.
What is a wedge pattern?
A wedge pattern is a chart pattern in which two trendlines slope in the same direction while their separation narrows. In a rising wedge, the lower line rises faster than the upper line. In a falling wedge, the upper line falls faster than the lower line. Traders commonly watch a rising wedge for a break below support and a falling wedge for a break above resistance.
A Symmetrical Triangle instead has oppositely sloping boundaries. Ascending and Descending Triangles each have one horizontal side.
Formula
Selected height = upper boundary − lower boundary at the same initial observation; downside objective = selected breakdown anchor − height; upside objective = selected breakout anchor + height- Measure the initial vertical separation at one shared observation.
- This example uses $103.50 − $100 = $3.50 and a $112.90 closing-price anchor.
- Calculate the trade distance from the assumed or actual entry to a separate stop reference.
Rising wedge example: target and stop
XYZ traces a rising wedge. At the selected initial observation the lower line is $100 and the upper line $103.50. The lower line rises faster. After a final $113.60 high, the selected breakdown closes at $112.90.
- Initial boundary separation: $103.50 − $100 = $3.50
- Close-anchored objective: $112.90 − $3.50 = $109.40
- Assumed short entry $112.90 and stop reference $113.61 above the final high: $0.71 distance
- Entry-to-target / entry-to-stop = $3.50 / $0.71 = 4.93
The displayed sequence reaches $109.40 three observations after the breakdown, meeting the selected objective. The planned distance uses the $113.61 stop reference; calculate an executed trade from its actual entry and exit fills.
At the initial observation, the lower line is $100 and the upper line $103.50. Their separation is $3.50. The upper line rises $0.72 per observation; the lower rises $0.88, so their separation contracts.
The final high is $113.60. The selected $112.90 close breaks below support. Project the initial width from that close: $112.90 − $3.50 = $109.40.
Assume short entry at $112.90 and a stop reference of $113.61, just above the final high. The planned distance is $0.71; distance to target is $3.50, giving a 4.93 ratio. The path reaches $109.40 three observations after the breakdown.
Falling wedge example
The reflected example starts with upper and lower lines at $120 and $116.50. Both fall, with the upper line falling faster. After a final $106.40 low, the $107.10 close breaks above resistance.
The upside objective is $107.10 + $3.50 = $110.60. An assumed $107.10 entry and $106.39 stop reference give the same $0.71 planned distance and 4.93 ratio.
How to trade a wedge breakout
A closing breakout, intrabar crossing and later retest are separate plans. Specify the activation, entry, stop reference and target for the selected plan. Calculate the executed result from the actual fills.
Compare the actual breakout direction with the preceding trend to distinguish continuation from reversal. Read nearby Support and Resistance alongside the selected objective, and measure participation with Relative Volume. Rising wedges that break down and falling wedges that break up call for opposite structures: the Options Profit Calculator prices puts, calls and spreads at the selected objective, $109.40 in the rising example, on the date you expect it.
Limitations of the wedge pattern
- Fix the swing points before you measure. Different swings change the slopes, the height and the breakout level.
- Let the actual breakout set the trade direction. The same rising or falling geometry can resolve either way.
- Plan profit-taking around the objective. It projects the initial width, and both displayed paths reach their targets three observations after the break; take partial profit there, or trail a stop when price runs past.
- Trade the wedge on the interval and session where you drew it. A wedge on one timeframe can be absent on another.
Bottom line
A wedge pattern frames a narrowing move between two lines that slope the same way, with a defined breakout level and a measured target. Draw both lines from at least two swing points each, let the actual breakout set the direction, and plan the entry, the stop beyond the final extreme and the target before the break.
Clear answers
Frequently Asked Questions
Sources and Further Reading
- Fidelity: Basic Concepts of Trend
- Fidelity Learning Center: Identifying Chart Patterns (transcript)
- Fidelity: What Is Technical Analysis?
How entries are sourced, calculated and updated: editorial methodology.