[DavidWaring]

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In our last lesson we looked at specific strategies for trading the Head and Shoulders Pattern and the Reverse Head and Shoulders Pattern, two chart patterns which we view as reversal patterns when they show up in the stock, futures, or forex markets. In this lesson we are going to look at a pattern called the wedge pattern, which is unique in the sense that it can be viewed as either a reversal pattern or a continuation pattern, depending on the shape of the pattern and whether it is located in an uptrend or a downtrend.

The Falling Wedge:

The falling wedge pattern is characterized by a chart pattern which forms when the market makes lower lows and lower highs with a contracting range. When you find this pattern in a downtrend it is considered a reversal pattern as the contraction of the range indicates the downtrend is loosing steam. When you find this pattern in an uptend it is considered a bullish pattern as the market range becomes narrower into the correction indicating that it is running out of steam and the resumption of the uptrend is in the making.

Example of the Falling Wedge Reversal:

Example of the Falling Wedge Continuation:

The Rising Wedge:

The rising wedge pattern is characterized by a chart pattern which forms when the market makes higher highs and higher lows with a contracting range. When you find this pattern in an uptrend it is considered a reversal pattern as the contraction of the range indicates that the uptrend is loosing steam. When you find this pattern in a downtrend it is considered a bullish pattern as the market range becomes narrower into the correction indicating that it is running out of steam and the resumption of the downtrend is in the making.

Example of the Rising Wedge Reversal:

Example of the Rising Wedge Continuation:

Links to Help You Learn About Wedge Patterns

Falling Wedge - Falling Wedge Pattern
Falling Wedge (Reversal) - StockCharts.com
Tales From The Trenches: The Rising Wedge Breakdown
Chart Examples of Wedge Patterns

That’s our lesson for today. You should now have a good understanding of the falling and rising wedge pattern and situations where they are considered a reversal pattern and situations where they are considered a continuation pattern. In our next lesson we are going to go over a strategy for trading rising and falling wedge patterns complete with entry and exit points and how to determine each.

As always if you have any questions or comments please leave them in the comments section below so we can all learn to trade together, and good luck with your trading!

Hi David,

Thanks very much for providing all of this useful lectures. I am a finance student from hong kong. These stuffs are never taught in class in my school as the professors think that they are not useful while at the same time, most traders apply it frequently. I am reading the words and found a typo:

The Rising Wedge:

The rising wedge pattern is characterized by a chart pattern which forms when the market makes higher highs and higher lows with a contracting range. When you find this pattern in an uptrend it is considered a reversal pattern as the contraction of the range indicates that the uptrend is loosing steam. When you find this pattern in a downtrend it is considered a bullish pattern as the market range becomes narrower into the correction indicating that it is running out of steam and the resumption of the downtrend is in the making.

"it is considered a bullish pattern"

should it be bearish as it's a continuation of a downtrend?

million thanks,
Matt

[David Waring]

Originally Posted by Unregistered

Hi David,

Thanks very much for providing all of this useful lectures. I am a finance student from hong kong. These stuffs are never taught in class in my school as the professors think that they are not useful while at the same time, most traders apply it frequently. I am reading the words and found a typo:

The Rising Wedge:

The rising wedge pattern is characterized by a chart pattern which forms when the market makes higher highs and higher lows with a contracting range. When you find this pattern in an uptrend it is considered a reversal pattern as the contraction of the range indicates that the uptrend is loosing steam. When you find this pattern in a downtrend it is considered a bullish pattern as the market range becomes narrower into the correction indicating that it is running out of steam and the resumption of the downtrend is in the making.

"it is considered a bullish pattern"

should it be bearish as it's a continuation of a downtrend?

million thanks,
Matt

Hi Matt,

Thanks for the comment I am glad you like the site and are finding it useful.

Yes you are correct that was an error on my part that should be a continuation of the downtrend not a bullish sign. I will be sure to address this in the next version of the videos.

Best Regards,
Dave

Thanks David for all the great information and knowledge you provide. Would you recommend Etrade as a good brokerage firm to use for someone wanting to go into day trading?
thanks!

[David Waring]

Originally Posted by Unregistered

Thanks David for all the great information and knowledge you provide. Would you recommend Etrade as a good brokerage firm to use for someone wanting to go into day trading?
thanks!

Hi There,

My pleasure thank you for the kind comment.

While I do not think E Trade is a bad firm I think there are better options out there for active traders. You can find my comments on suggested brokers here:

New to Trading Which Platform to Use?

Hope that helps.

Best Regards,
Dave

[ivanhoe]

Thanks David for the great vid lectures.
I noticed that the wedge trend lines touch only closing high and low prices and not the range prices. Are these range prices not considered as important in forming wedge and indeed all pattern formations?
Thanks

[David Waring]

Hey Ivanhoe,

Generally what you are looking for with any pattern that uses trendlines or horizontal support and resistance lines, is an area on the chart where the price action runs into a wall so to speak and then reverses in the other direction. So basically because it is essentially a price reversal that forms the support and resistance levels, it is the highs/lows/opens and closes that the support and resistance lines, like the ones which form the wedge here, are drawn off of.

Hope that helps. If there are any other questions or comments on this one please feel free to post as always.

Best Regards,
Dave

[geosliker]

David would you say that the wedge pattern are a very basic pattern to see, just forming support and resistance lines? Or is there a differance between drawing Support and resistance lines, then drawing a trend channel ?

Thanks in Advance

[David Waring]

Hi Geosliker,

Glad to hear from you and welcome to the community.

Yes trendchannels and wedges are just another way of looking at support and resistance so I would agree that drawing a trendchannel or a wedge is the same as drawing in support and resistance lines.

Best Regards,
Dave