Rising and falling wedges

Higher highs with shrinking room overhead

A rising wedge has two trendlines, both sloping upward, but they are not parallel. They are converging. The lower trendline drawn across the higher lows is rising faster than the upper trendline drawn across the higher highs. On a chart it looks like price is climbing into an ever-narrowing channel pointing up and to the right. The room overhead is shrinking even as price keeps making fresh highs.

The structural read is bearish, and that catches a lot of beginners by surprise. Price is going up, so the pattern should be bullish, right? Not quite. The shape is telling you that buyers are slowing down faster than sellers. Each higher low gets bid up more eagerly, but each higher high gets less and less follow through. Momentum is decaying inside an apparent uptrend. That is why rising wedges often resolve with a sharp drop out the bottom.

A falling wedge is the mirror image. Both trendlines slope downward, but they are converging. The upper trendline drawn across the lower highs falls faster than the lower trendline drawn across the lower lows. The shape looks like price is sliding into an ever-narrowing channel pointing down and to the right. The structural read is bullish. Sellers are slowing down faster than buyers. Falling wedges often resolve with a sharp rally out the top.

Wedges are easier to spot in hindsight than in real time. The convergence happens slowly. The pattern often takes many candles to form, and price can spend a long time inside the channel before breaking out. That is also why wedges are easy to over-interpret. Two random uptrend swings happen to converge slightly and traders call it a rising wedge. The genuine pattern needs at least two clean touches on each boundary and a visibly narrowing channel. If you cannot see the narrowing without squinting, you do not have a wedge.

Recap: rising wedge has both lines up but converging, often resolves bearish. Falling wedge has both lines down but converging, often resolves bullish. The flag versus wedge difference is parallel versus converging boundaries, and the wedge needs a visibly narrowing channel with two clean touches on each side to be real.