1. Home
  2. Knowledge Base
  3. Wedge (Trading) – Definition

Wedge (Trading) – Definition

Wedge (Trading) Definition

In trading, a wedge refers to a method of analysis that takes the form of a triangular shape. Technical analysts use a wedge to depict trends in the market, a wedge has an arrow shape. It is a representation of short and middle-term reversal in the movement of price in the market.

Using the wedge, price patterns are drawn on a chart to form an arrow, major movements and trends in prices are represented using a wedge.

A Little More on What is Wedge in Technical Analysis

A wedge is a method of charting that analysts employ when depicting major price movements in the market. Just like a normal wedge, analysts converge price trends as an arrow, suing the wedge. When there is an upward movement on a wedge, it signifies a bullish market while a downward movement is a bearish market.

Wedge Advantages

In technical analysis, analysts use a wedge to depict price movements and major trends in the market. Here are the advantages of wedge;

  • A wedge provides a general outlook of market trends.
  • The point of reversal which forms a convergence for price trends give the formation of a wedge.
  • Investors are able to derive cogent market insights through the technical analysis depicted on a wedge.
  • Bearish and bullish patterns in the market are detected through a wedge.
  • Upper and lower trendlines are important to investors, especially when making investment decisions.

Rising Wedge

A wedge pattern is commonly formed when securities, stocks and assets are being traded in the market. As depicted on a wedge pattern, a sustained upward movement in the prices of assets or securities is always followed by a reversal, the reversal however occurs at the peak. When there is an upward movement on the wedge pattern, it indicates a bullish market, the point of reversal is however a bearish pattern. Short selling, margin borrowing, among others are the major trends of a bearish trade.

Falling Wedge

In a falling wedge, when there is a sustained decline in the price of security, ata certain time, the lines drawn above and below the wedge chart will convergence. The convergence signifies a reversal from a bearish pattern with points that a bullish pattern will commence. When this happens, the reversersal would cause an increase in the price trend. This price trend helps investors make strategic decisions as regards investment option.

References for “Wedge

 

Was this article helpful?