A Wedge Pattern is a continuation pattern that appears on technical price charts of assets. It is formed by two diagonal lines moving together as price range contracts while investors are testing the current trend.
As a continuation type pattern, the wedge typically eventually sees the trend that was in place before the wedge appears resume after a period of 1-3 weeks. Below are the three types of wedge patterns:
1. Rising Wedge. This wedge shape is tilted upward; thus the name. However, a rising wedge occurs during a downward trend, or “bear” market. It’s a momentary upward shift, but the bear market continued afterward.
2. Falling Wedge. The falling wedge is tilted downward. It represents just the opposite of the rising wedge, in that it denotes a brief downward movement during a “bull” market, which continues once the wedge is formed.
3. Level Wedge. These appear to move in more or less a horizontal direction on a graph. Just like the rising and falling wedges, the level wedge shows a brief respite in a trend, which will continue once the wedge pattern is complete.