Both Rising Wedges and Falling Wedges indicate a pause in a given trend, thereby suggesting a period of indecision among traders. They could signify a reversal or a continuation of the trend.
A Rising Wedge can be either a reversal or a continuation pattern, depending on whether it occurs after an uptrend or a downtrend. However, a Rising Wedge is a bearish chart pattern, which means that it is almost always followed by a downward trend.
This pattern is formed as price consolidates between upward support and resistance lines. If a Rising Wedge occurs after a downtrend, it emerges as a continuation pattern. As the chart shows above, this is because the price soon breaks past the resistance line and continues to fall even further.
However, if a Rising Wedge succeeds an uptrend, it occurs as a reversal pattern. As the chart shows below, this is because the price soon breaks past the resistance line and starts heading downwards.
Traders can go short after they spot a Rising Wedge, expecting the price to fall.
The Falling Wedge pattern can also be either a trend reversal or trend continuation sign, depending on the details of its formation. Unlike the Rising Wedge, the Falling Wedge is a bullish chart pattern, indicating the commencement of an uptrend.
As you can see from the chart above, a Falling Wedge after a downtrend indicates a reversal. Conversely, and as the below chart shows, a Falling Wedge that occurs during an uptrend will usually lead to a continuation of the price movement.
Traders can go long after the Falling Wedge comes to a close, expecting prices to rise.