Understanding the Rising Wedge and Falling Wedge Chart Patterns

Introduction

Rising and Falling Wedges are price patterns in technical analysis. The rising wedge is a bearish pattern while the falling wedge has a bullish bias. In this regard, they both differ from the symmetrical triangle pattern which can be bullish or bearish at the same time.

The Rising Wedge

KLIC_chart

A Rising Wedge is characterized by two converging trend lines. The trend lines are rising in the process, hence the term "rising". Successive highs and lows are connected over a period of time. However, the lower trend line - which connects the lows - rises faster than the upper trend line, which connects the highs. This creates the typical wedge shape.

The pattern can occur in a rising trend or in a falling trend. In the first case - as shown in the chart above - it is a reversal pattern. The moment the price falls out of the wedge at the extreme point of the converging trend lines, this can indicate the start of an opposite trend movement.

However, a Rising Wedge can also occur as a continuation pattern in a long-term downward trend. An example is shown in the chart below.

TCRR_chart

In this case, the main trend is bearish and the Rising Wedge is a purely temporary price rebound. Once price falls out of the price pattern the bearish main trend continues.

The Falling Wedge

MYGN_chart

A Falling Wedge is also characterized by two converging trendlines. However, the trend lines run downward instead of upward. In this way successive highs and lows are connected over a period of time. In contrast to the Rising Wedge pattern, in this case the upper trendline declines faster than the lower trendline. Again, this creates the characteristic wedge shape of this pattern.

Likewise for the Falling Wedge, the pattern can occur both in a downward - as shown in the chart above - and upward trend.In the case of a downward main trend, the Falling Wedge acts as a reversal pattern and the main trend will possibly turn from negative to positive when there is an upward break-out from the wedge. However, if the price pattern is visible during a rising main trend, we speak of a continuation pattern, as shown in the example below.

TLYS_chart

Wedge Screenfilters in ChartMill

ChartMill offers the possibility to screen for Rising and Falling Wedges. The filter can perfectly serve as a basis for a first selection which can then be further fine-tuned manually. Below a few recent results of the filter 'Rising Wedge - ST'.

Wedge filter stockscreener 3

To configure the filters, go to the Stock Screener page and select the 'Indicators' tab. Then open the drop down menu under 'Chart Patterns'.

Wedge filter stockscreener

Now choose one of the available options.

Wedge filter 2

The addition "ST" stands for Short Term. In this case, ChartMill will search for wedges within a time frame of up to 60 periods.

If the wedge formations are not visible on the chart, it means that the chart settings still need to be adjusted. Choose the 'Main Chart' tab and click on the plus sign (blue button). Then click 'Select Overlay To Add' in the lower ticker field. In the drop down menu, scroll all the way down and select 'Support + Resistance Lines'. Now the patterns are visible in your charts.

Wedge filter stockscreener 2

A sample screen filter for the Rising Wedge Chart Pattern short term

A sample screen filter for the Falling Wedge Chart Pattern

(both screens based on US stocks, minimum price of $5 and a minimum volume of 200,000)



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