Recently, while reviewing my trading records, I found that the wedge pattern appears quite frequently in my trades. Speaking of what a wedge shape looks like, it’s basically when the price gradually converges over a period of time, forming a sharp angle. Today, I want to talk about this pattern because mastering it can indeed help predict market reversals or continuations.

There are mainly two types of wedges: an ascending wedge and a descending wedge. Let’s start with the ascending wedge. When this pattern appears, the price’s highs and lows are both rising continuously, but the upper trendline is more gradual than the lower one. This kind of movement looks like the bulls are gradually losing strength, so it’s usually seen as a bearish signal. I’ve encountered this a few times; when the price finally breaks below the support line, a more noticeable decline often occurs.

The logic of the descending wedge is the opposite. The highs and lows are both falling, but the lower trendline has a steeper slope. This pattern generally indicates that the bears’ momentum is weakening, and once the price breaks above the resistance line, there’s often a considerable upside potential.

When trading these two patterns, several key points are especially important. First is volume. During the formation of the wedge, volume gradually diminishes, indicating that both buyers and sellers are waiting and watching. But when the price actually breaks through the trendline, a significant increase in volume makes the signal more reliable. Second is the time span; the longer the wedge takes to form, the more obvious the subsequent move tends to be. I’ve found that short-term wedges might only be suitable for quick trades, while long-term wedges are worth paying attention to for medium- and long-term opportunities.

Let me share two examples I’ve personally seen. One is a tech stock that formed an ascending wedge from early to mid-2023. At that time, I observed the highs getting higher, but the buying volume was clearly weakening. When it finally broke below the lower trendline, a sizable decline followed. I took a short position at the breakout point, setting my target based on the height of the wedge, and it turned out to be quite close.

The other example is a currency pair on the 4-hour chart forming a descending wedge. During that period, the price kept making lower lows, but each rebound’s high was also decreasing, making the pattern more and more pointed. When the price broke above the upper trendline with increased volume, I decisively went long, and a subsequent rally followed. Gold also exhibited a similar descending wedge in 2024, which ultimately proved the pattern’s validity.

However, I must say that wedges are not foolproof. Sometimes they produce false signals, so my current approach is to combine other technical indicators and overall market conditions for confirmation. Relying on a single pattern to make decisions can be risky. Successful trading requires not only correctly identifying these patterns but also managing risk well—setting proper stop-loss levels so that a single misjudgment doesn’t cause too much damage.

Overall, understanding wedge patterns is quite helpful for trading. The key is to patiently wait for the pattern to fully form, confirm the breakout signal, and then act. Only then can you more steadily profit from the market.