Wedges: Rising & Falling, Chart Patterns, Edition #3 (26/09/2021)

Q serves up a double-Wedge special - with a loaded helping of Secret Sauce 🤤 Develop a deeper understanding of classic chart patterns, technical analysis and save our handy cheatsheets for later 👇 

Classic Chart Patterns: Rising Wedge & Falling Wedge

Executive Brief - Rising Wedge

  • Temporary bullish formation following an antecedent trend

  • Converging upward-sloping, ascending trendlines 

  • Decreasing volume at break down is ideal but not essential

  • Successful retest confirms the breakout

Executive Brief - Falling Wedge

  • Temporary bearish formation following an antecedent trend

  • Converging downward-sloping, descending trendlines 

  • Increasing volume at break upside is ideal but not essential

  • Successful retest confirms the breakout


What are the Wedge chart patterns?

The Wedge is a classic chart pattern. Both the Rising Wedge and Falling Wedge typically appear across a host of different charts and timeframes.

Often confused with other classic patterns like triangles or pennants, the primary distinction of Rising and Falling Wedges are how the trendlines converge to form their distinct wedge appearance.


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A formation that ascends to the top-right corner is Rising Wedge, while a pattern that descends to the bottom-right is a Falling Wedge. Many traders also refer to these formations as Ascending Wedges and Descending Wedges, respectively.

Technical practitioners use this price distribution pattern to forecast a possible extension or reversal of the antecedent trend. The classification of Wedge formations as trend continuation or reversal patterns depend on whether current market conditions are rising or falling.

Above: A bearish reversal formation variant of the Rising Wedge

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Upward converging trendlines define Rising Wedges, best observed in rising markets. Notice the previous price increase begins to lose inertia as opposing sellers stabilising the price. As a result, the recesses between the lows and highs start to converge and form a wedge-like shape.

Above: A bullish reversal formation variant of the Falling Wedge

Extrapolate this understanding to bearish conditions to now interpret the descending Wedge variant - Falling Wedges attempt to determine a possible extension of the past uptrend in periods of demand and a short term bullish reversal in a prevailing bear market.


Q's Advance Technical Principle: Trendlines

Trendlines are a modest yet powerful tool in technical analysis that offers analysts a graphical method to distinguishing an underlying price trend. 

Beware of misusing the trendline! Despite its simplicity, the trendline is perhaps one of the most commonly misunderstood tools that frequently frustrate beginners. 

Correct application of trendlines can offer technical practitioners valuable foresight into emerging changes in the antecedent trend through price breaks above or below the line. 

Qluster analysts define a trendline as a straight line connecting a series:

Uptrend Line = Ascending bottoms (lows) in a rising (bull) market 

Downtrend Line = Descending tops (highs) in a falling (bear) market


Technical Theory considers the Falling Wedge as an indicator of a potential downtrend reversing to an uptrend or continuation of an antecedent trend. However, it is more likely that this Reversal is only a temporary breakout in a bear market, while in more bullish markets, a solid break upside may occur.

For the Rising Wedge, apply an inversion of the logic above...

Technical Theory considers the Rising Wedge as an indicator of a potential uptrend reversing to a downtrend or continuation of an antecedent trend. This Reversal is more likely to be a temporary breakout in a bull market, while in more bearish markets, a solid break downside may occur.

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It is generally cautioned against using just one technical indicator to adhere to proper due diligence practices. Alternatively, Qluster analysts suggest incorporating other indicators and analysis for a more reliable forecast of charts.

Q's Advanced Technical Principle: The inherent scope of technical analysis involves recognising the underlying human psychology within a price distribution chart. 


How to Find and Ride Falling Wedges

Have you seen Wedge…?

A simple visualisation of the Wedge formation is a volume of water flowing through a converging - or narrowing - riverbank.

Like other classic chart patterns, the Falling Wedges and Rising Wedges can be a relatively simple formation for new traders to learn pattern trading.

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Similarly, the Rising Wedge and Falling Wedge are versatile chart patterns applicable to all asset price charts and different trading timeframes.

The Wedges may appear in both bull and bear trends, inferring that a trend reversal or extension may occur soon. For example, the Falling Wedge generally hints at an impending extended breakout in an uptrend and a temporary one in a downtrend.

This chart pattern trader's guide and cheatsheets can be applied to all financial markets, for example:

  • Forex

  • Equity Markets

  • Commodities 

  • Cryptocurrency

Let's explore how to identify both Wedge patterns on any price chart...

Explorer’s Guide to Identifying Rising & Falling Wedge

Suppose during a particular period, a Technical practitioner plotted two trendlines; one following the highs and the other following the lows of the price action. 

Now assume that the steepness or slope of the top trendline was a great deal steeper than the bottom trendline, eventually forcing the two lines to touch or converge; this is a Falling Wedge.

Invert the logic again and apply this theory to a bearish price action - this is a Rising Wedge...

Let's delve deeper into this analogy and reveal a practical approach to identifying these price distribution patterns:

  1. Observe price action as a solid flowing river, and the river's width represents the range of price movements. One can also imagine the two trendlines as the banks of this river. 

  2. Imagine all the water flowing through the river, the sheer volume of it. When the banks are broad set, the river flows freely. But when the banks narrow (converging trendlines), the water (volume) in the river builds up pressure. 

What happens when the flow of water becomes too great for the riverbank?

It will break out from the banks (trendlines), which floats a crucial question - which side of the riverbank will flood?

Above: Bullish continuation variant of the Falling Wedge. In this instance, the river (price action) breaks upward after water pressure (demand) builds up within the converging banks.

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Qluster analysts break down the Rising Wedge and Falling Wedge components, applicable to price distribution charts in all financial markets…

Rising Wedge

  1. Previous price trend

  2. Converging Up Trendline and Return Trendline

  3. Price action channels tighter as formation progresses

  4. Classify the Breakout:

    1. Short-term Bearish Reversal: Breakout to downside signalled by candle close below Up Trendline - Bull, Bear Markets

    2. Long-term Bullish Continuation: upside breakout signalled by candle close above Return Trendline - Bull Market

  5. Decreasing volume profile complements Bearish Reversal

    1. Increasing volume profile conducive to Long-term Bullish continuation

  6. Confirmation of breakout via successful bullish or bearish retest

Check out this visual reference of the Rising Wedge:

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Falling Wedge

  1. Previous price trend

  2. Converging Down Trendline and Return Trendline

  3. Price action channels tighter as formation progresses

  4. Classify the Breakout:

    1. Intermediate-term bullish continuation: Breakout upside signalled by candle close above Down Trendline - Bull Market

    2. Short-term Bullish Reversal: Breakout upside signalled by candle close above Down Trendline - Bear Market

    3. Short-term Bearish Continuation: Downside breakout signalled by candle close below Return Trendline - Bull Market

  5. Decreasing volume profile complements Bearish Continuation

    1. Increasing volume profile conducive to Bullish reversal

  6. Confirmation of breakout via successful bullish or bearish retest

Check out this visual reference of the Falling Wedge:


Q attempts to spotlight the psychological drivers behind this classic chart pattern below.

👇Take a look now at the psychology behind the price action 👇


Trader Psychology and Wedge formations

In our recent Bull Flag edition, Qluster analysts referred to the idealised case of our imaginary friend Judy. 

Did you miss the plight of Judy and her Bull Flag trade? Read the previous edition of Chart Patterns to learn about the psychology behind a classic Bullish continuation chart pattern...

Qluster Research
Bull Flag, Chart Patterns, Edition #2 (05/09/2021)
Read more

This leaves us with a new question for this week’s analysis…

How do Ascending Wedge and Descending Wedge patterns form?

Q's Advanced Technical Principle: The markets reflect human psychology! Therefore, they also tend to be equally as unpredictable. 

Similar to the previous theoretical exercise, attempt to visualise the psychology that drives the behaviour of one imagined trader. Remember that reality is a magnitude of different possible combinations formed from each individual's unique circumstances! 


The following narrative illustrates one possible explanation for why the Wedge chart pattern works and remarks on some of the human mechanics behind each price action. In this hypothetical scenario, try to place yourself in the shoes of the idealised market participant 'Andy'...


Andy is the CEO of a publicly-traded manufacturing firm that occupies a niche for military avionics production. Business within this sector is ruthless because market growth is restricted through heavy regulation and government bureaucracy. 

Andy's situation is dire. His company's stock price is at all-time lows. Moreover, his key shareholders uproar because a major rival verges on a revolutionary research breakthrough in radar detection systems.

Unfortunately, the unrelentingly harsh operating conditions produce cut-throat competition - where opposing firms readily engage in underhanded tactics to gain an advantage over a rival firm. As a result, the only way to grow revenue is to either drive business away from a competitor or, riskier yet, assimilate competing firms through involuntary acquisition. 

Andy is pleased to obtain recent reports indicating his foremost competitor is amidst an internal crisis after discovering a leak had compromised highly sensitive breakthrough research.

Andy discusses the situation with his close friend Chris, who is heavily involved with the stock markets. Chris sees an excellent opportunity to short-sell the competitor's stock and contacts several investment bankers.

Before long, the market is made, and Chris executes his short positions on the rival firm. 

Andy quickly directs his Marketing and Public Relations teams to go into overdrive. Suddenly, every news outlet began airing reports that the competitor firm had lost critical proprietary information.

The market reaction induced transient pain for stockholders in the rival firm. Institutional investors promptly reduce exposure, while savvy speculators engage in profit-taking. 

Meanwhile, Andy gloats in his fortune, and his shareholders sigh with relief as the competitor's stock price tumbles down from all-time highs. 

Soon after, an official statement from Andy's competitor attempts to alleviate the market's concerns. According to his rival CEO, the hackers had not succeeded in stealing the core research. The company declared it was confident in the integrity of its product. 

Encouraged by the CEO's optimism, the competitor's stock demand sees a slight recovery, but a lingering sentiment of doubt prevents the price from advancing to new heights. 

Furthermore, Andy's tight-lipped and inconclusive press statements do little to entice new interest from investors. As a result, each recovery in his company stock price soon wavers down to new lows.

For the next several weeks, Andy directs his entire Engineering department into preparing his newest product for market. At the same time, his Marketing and PR teams propagated an ongoing smear campaign against his competitor's alleged security failures. 

In response, Andy's competitor valiantly fights back in a sustained defence. However, a newly published exposé fuels speculation that the security breach was, in fact, far more severe than the rival CEO had implied in his initial statement.

Andy decides it is time to strike. Seizing the opportunity, Andy reveals his masterstroke and launches his next-generational radar detection system - which proves to be a flying success! 

His company quickly snatches up several lucrative government defence contracts to generate billions in revenue for his balance sheet. 

Andy is delighted to see that his company stock price soars in a flurried excitement of new buying activity while his competitor's stock capitulates to new depths.

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Important Disclaimer: The names and examples used in this narrative are purely fictional. This imagined scenario is intended for demonstrative purposes only.


Remember! Andy's situation is just one of innumerable possible realities. Intrinsically unique human elements drive each trader's behaviour at any given moment in natural market settings.

Practice mapping out the human nature in price action to help deepen your perspective and gain invaluable insights into what the Wedge patterns mean for traders like Andy.

Q's Advanced Technical Principle: Technical traders base their decisions on the assumption that humans will make the same mistakes - i.e. hoomans will be hooman!

For you faithful readers, the team here at Qluster have assembled a graphical representation of human psychology - a.k.a. mistakes - thought to be driving the Falling Wedge formation in this example.

Above: Bearish reversal variant of a Rising Wedge depicting some of the psychological drivers behind its formation in the context of the competitor company’s stock prices

Above: Bullish reversal variant of a Falling Wedge depicting some of the psychological drivers behind its formation in the context of stock prices for Andy’s company

With the psychology of other market participants in mind, proceed to the next section below to learn how to trade the Ascending (Rising) Wedge and Descending (Falling) Wedge. 


Qluster Research readers will also have free download access to Q's handy cheat sheet and trader checklists at the end of this article.

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How to trade the Rising Wedge and Falling Wedge

How to find both Rising and Falling Wedge Patterns in 4 Simple Steps.

Step 1) Draw the Trendline

The first step to confirming the possible formation of a Falling Wedge is to draw two trendlines, the first connecting the minor highs and the second the minor lows. Next, both trendlines are required to slope downwards at different angles, eventually converging or joining at a point. 

The price should cross the pattern from top to bottom a handful of times, creating plenty of movement along with the price.

Recall that either variant of the Wedge can also appear in a bear market. 

Q's Advanced Technical Principle: Always wait for the pattern to complete before taking action! Entering a position prematurely before confirming the validity of either the pattern formation or the reversal break is a brilliant strategy for donating your capital to the markets. 

Step 2) Multiple Touches

As explored earlier, it is essential to ensure the Wedge uses accurate price points to boost precision. 

A straightforward guideline technical practitioners can employ is to seek a Wedge formation with at least five touches on the converging trendlines - three along one side and two alongside the other. 

Anything fewer warrants added caution should one hope to obtain any meaningful data from this analysis. Avoid falling victim to hasty conclusions - be sceptical of wedges with fewer than five touches.

Step 3) Supportive volume trend on the breakout is optimal - but not essential

According to technical theory, volume will generally trend upwards on price break upside. However, the opposite is valid for price breaks downside, where volume ideally falls to signal the resurgence of supply. 

Volume characteristics are not essential to confirm a Rising Wedge and Falling Wedge, although a rebound in volume on the breakout may support bullish momentum. 

Step 4) Look for confirmation of the Breakout direction

Following a Rising Wedge and Falling Wedge, a breakout can be either upward or downward. 

Identifying the breakout direction begins with monitoring each trendline's boundaries for a candle close. Price action alerts technical practitioners to the course of an ensuing break, depending on whether the candle close occurs to the up or downside.


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Step 5) Q's Secret Sauce

Price patterns are like any other technical indicator - they can fail!

A conservative strategy to exposing false chart patterns and avoiding failed Rising Wedge and Falling Wedge formations is to seek a successful retest of the trendline break. 

Should either the bulls or bears command the outcome of consolidation, technical traders may find a more reliable reading of the breakout by allowing buyers or sellers time to demonstrate a firm grip on the subsequent developments in price action.

Be patient and allow an objective judgment of price action to provide further confluence to the authenticity of the uptrend continuation following a breakout from the short-term consolidation. 

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Save Q's Rising Wedge and Falling Wedge Trader Checklist for later and check back on these practical factsheets! 

Improve price pattern fluency, and achieve technical acuity sooner 👇

Trader Checklist: Rising Wedge with Q's Secret Sauce

  1. Confirm the reversal or continuation

  2. Five or more tests within up-sloping & converging trendlines

  3. Breakout with a decisive candle close above/below the Trendline

  4. Supportive volume at breakout is ideal

Secret Sauce: Wait for a successful retest to confirm the breakout...

👇 Download the Rising Wedge Trader Checklist 👇

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Trader Checklist: Falling Wedge with Q's Secret Sauce

  1. Confirm the reversal or continuation

  2. Five or more tests within down-sloping & converging trendlines

  3. Breakout with a decisive candle close above/below the Trendline

  4. Supportive volume at breakout is ideal

Secret Sauce: Wait for a successful retest to confirm the breakout...

👇 Download the Falling Wedge Trader Checklist 👇

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Congratulations! You've just completed an introduction to the Falling and Rising Wedges chart patterns.

Qluster analysts have tonnes of handy guides, cheatsheets and technical analysis tutorials planned for publishing.

Make sure you've subscribed to receive our latest articles, tutorials, and trading ideas!

See you again for the next update.

- q

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