A wedge is a chart pattern commonly used in the technical analysis of cryptocurrencies and other financial assets. A wedge is formed when the price moves with a downward or upward narrowing trend. When this happens, a break out in the opposite direction is expected in the related financial asset. There are two types of wedge patterns, rising and falling wedge patterns.
A Rising Wedge Pattern
A rising wedge pattern is a chart pattern that starts with a broad price movement at the bottom and contracts as prices rise. It is formed over a period of 3 to 6 months and the price fluctuations occur between the upper line, which acts as resistance, and the lower line, which acts as support. Resistance and support lines converge over time and squeeze the price. Investors interpret a rising wedge pattern as a bearish signal since it loses momentum and is more conductive to decline.
A Falling Wedge Pattern
A falling wedge pattern is considered an upward reversal pattern since it indicates that buyers are becoming increasingly aggressive and trying to push prices up even within a downtrend. A falling wedge pattern is usually formed after a long downtrend. The two trend lines defining the pattern are drawn along the price movements of the financial asset. As with the rising wedge pattern, these two lines converge over time and squeeze the price. When the pattern is complete, buyers become even more aggressive and the price breaks the upper line upwards, and investors interpret this as an uptrend.
