Two lines that lean the selfsame way:a wedge narrows, day by day.
A chart pattern formed by two converging trend lines that both slope in the same direction.
A rising wedge is traditionally read as a warning of a possible turn down and a falling wedge of a possible turn up; these readings are conventions and often fail.
In plain words
A wedge forms on a chart when a line across the highs and a line across the lows both slope the same way, up or down, while drawing closer together. In a rising wedge the price keeps climbing but each push gains less; in a falling wedge it keeps dropping but each drop is smaller.
See it move
Broken out below Rising lower line
Why it matters
Chart readers traditionally take the shrinking swings as a sign that the move is losing force, so a rising wedge is read as a warning of a possible turn down and a falling wedge of a possible turn up. That reading is a convention and often fails: wedges also resolve in the direction they were already heading.
Worked example
An example only. The figures are round and invented for the arithmetic: they are not market prices.
A pair makes highs at 1.1100, 1.1140 and 1.1160, with lows at 1.1000, 1.1070 and 1.1120.
- 1Highsup 40 pips, then up 20 pips.
- 2Lowsup 70 pips, then up 50 pips.
- 3Distance from low to high100 pips, then 70 pips, then 40 pips.
Both lines climb, the lower one faster than the upper, and the distance between them shrinks from 100 to 40 pips: the shape of a rising wedge.
A common mistake
A wedge is not the same as a triangle. In a triangle one line is flat or the two slope in opposite directions; in a wedge both slope the same way.
Check yourself
Educational information, not investment advice or a recommendation to trade.