Wedges

A wedge is a trend running out of steam

A wedge looks like a tilted triangle: both boundary lines slope in the same direction and converge. That combination is the message. Price is still making new highs (or new lows), but each step is smaller than the last — the trend is running out of fuel.

• Rising wedge: both lines point up, the lower one steeper. Bearish bias — it usually breaks down.
• Falling wedge: both lines point down, the upper one steeper. Bullish bias — it usually breaks up.

A wedge can be a reversal (at the end of a long trend) or a continuation pattern (as a pullback inside a trend). The breakout tendency is the same in both cases: rising wedges break down more often, falling wedges break up more often.

Wedge vs triangle vs channel

• Channel: two parallel lines. The trend is steady; no sign of exhaustion.
• Triangle: the lines converge but slope in opposite directions (or one is flat). It's a balance between buyers and sellers.
• Wedge: the lines converge and slope the same way. The trend continues in name, but with less and less progress.

A practical check: draw both trendlines. If they would meet within the next few weeks on the chart and both point up (or both down), it's a wedge. You need at least two touches on each line, ideally three on one of them.

A rising wedge at the end of an uptrend

What happened:

• After a strong run from $93, price kept making higher highs — $106, then ~$107.6, ~$109.2 and finally $110.8 — but each new high was only about $1.6 above the previous one, while the lows rose faster (from $100 at the start of the wedge).
• Volume fell steadily throughout the wedge: fewer and fewer buyers were willing to pay up.
• The lower line broke at about $108.8 on the biggest volume in months.

Why: in a rising wedge buyers keep pushing to new highs, but the gains get smaller and the dips get bought faster — often by the same late buyers. Eventually there are no new buyers left at those prices. When the lower line breaks, all of them are trapped and the selling feeds on itself.

Target: the common rule is a return to where the wedge began — here $100. Many wedges retrace the whole pattern quickly.

How we use it: exit or reduce on a close below the lower line ($108.8). A rising wedge in a stock you hold is a reason to tighten your stop to just below the lower line long before the break. RSI often shows divergence at the wedge's highs — a second warning.