Recently, while studying technical analysis, I revisited the wedge pattern and realized that many people still have misconceptions about it. Wedge patterns are actually quite useful in financial markets; the key is to understand the underlying logic.

There are two types of wedges: an ascending wedge and a descending wedge. Let me start with the ascending wedge. The characteristic of an ascending wedge is that during the uptrend, both the highs and lows are gradually rising, but there's a detail—the upper trendline (connecting the highs) is actually less steep than the lower trendline (connecting the lows). What does this mean? It indicates that buying momentum is gradually weakening, even though new highs are still being made, the pace of making new highs is slowing down. This is usually a bearish signal; once the price breaks below the support line, a significant decline may follow.

Conversely, a descending wedge occurs when the price is falling, with both lows and highs gradually decreasing, but the lower trendline (connecting the lows) is steeper than the upper trendline (connecting the highs). What does this suggest? It indicates that selling pressure is weakening, even though new lows are still being made, the speed of new lows is slowing. This is typically a bullish signal; once the price breaks above the resistance line, a substantial upward move may ensue.

I want to highlight a point many people tend to overlook: volume. During the formation of a wedge, volume gradually diminishes, indicating that both sides are approaching a balance, and the market is accumulating energy. However, when the price finally breaks out of the wedge boundary, volume must significantly increase for the breakout to be reliable. If volume doesn’t pick up, that breakout might be a false signal, so caution is essential.

Another detail is the time span of the pattern. The longer a wedge takes to form, the more obvious the subsequent move tends to be. Short-term wedges may only be suitable for quick trades, while long-term wedges are more relevant for medium- and long-term traders.

Let me give you a real-world example. From early to mid-2023, a tech stock (TechCo) formed a very clear ascending wedge on the daily chart. The price kept making new highs, but the gains at each new high were diminishing, and volume was gradually decreasing. When the price finally broke below the lower trendline, accompanied by volume expansion, the stock price dropped sharply afterward, perfectly confirming the pattern’s prediction. Traders who shorted near the lower trendline set their stop-loss just above the recent high, and their target was calculated based on the height of the wedge, ultimately resulting in profits.

Here’s another example with a descending wedge. Gold formed a descending wedge on the 4-hour chart from early to mid-2024. The price kept making new lows, but each new low was less severe, clearly showing that selling pressure was waning. When the price broke above the upper trendline with volume increasing, gold surged higher. Long traders entered near the upper trendline, with stops just below the recent low, and targets were set based on the wedge’s height, leading to profitable trades.

But I must emphasize that, although wedges are common technical patterns, they are not always accurate. Failures can happen, so it’s crucial to confirm signals with other technical indicators and market conditions. Don’t trade solely based on spotting a wedge; that would be too risky.

Honestly, successful trading has never relied on a single pattern. It’s about integrating technical analysis, fundamentals, and risk management. Wedges are just tools to help identify potential reversal or continuation points, but the ultimate determinants of success are your overall trading system and discipline. If you follow main assets like BTC, ETH, BNB on Gate, you can also use wedge analysis to study their trends—you might find some good trading opportunities.