Bullish wedge pattern how to#

There are two main ways to trade wedges: breakout and reversal.īreakout trading involves taking a position at the point where the price breaks out of the wedge pattern.

Bullish wedge pattern how to#

Once you’ve identified a wedge pattern, you can start thinking about how to trade it. This is because fewer and fewer traders are participating in the market as the trend starts to reverse. 4 There Should Be Volume DeclineĪs the pattern forms, you should also see volume start to decline. This narrowing is what creates the wedge shape. When you plot the reversals on a chart, you should see that they’re getting closer together.

3 The Reversals Should Be Getting Narrower These are usually marked by peaks and troughs on the price chart. 2 There Should Be Two Reversalsįor a wedge pattern to be valid, there should be two reversals. You can do this by looking at the longer-term charts to see if there’s a clear direction. Wedge patterns only occur in the middle of a trend, so the first thing you need to check is whether the market is indeed trending. There are four factors you need to consider before you can identify a wedge pattern on a chart: 1 The Market Should Be In a Trend Both types of wedges are considered to be continuation patterns, which means they usually occur in the middle of a trend. They are characterized by two descending trendlines that slowly converge as the market trends downward. It is characterized by two ascending trendlines that slowly converge as the market trades higher.įalling wedges happen when the market is trending downwards. Rising wedges occur when the market is trending upwards. There are two types of wedge patterns: rising and falling. It’s called a wedge because it looks like one on a chart. A wedge pattern is a technical analysis tool that’s used to predict reversals in the market.