What is the Wedge Formation?

The wedge formation is a formation that is not one of the most easily recognized. However, this price formation allows you to get important information and, on top of that, quite “certain”, so an investor who manages to discover this formation will be able to make more decisive investment decisions.

Do the upward and downward wedge always occur in similar situations?

The obvious answer is no. In the case of rising wedge formation, you should look for it during the occurrence of short uptrends, when there are long-term declines, or you may encounter it in during the last phase of a bull market. On the other hand, a descending wedge formation usually occurs during a medium-term correction of an uptrend.

When is it possible to determine a wedge?

In both cases, the determination of the wedge is possible only after noticing four turning points, which will coincide with each other. These will be, of course, two bottoms and two rises. The turning points may be followed by a breakout, but still perhaps corrected, and only then can the correct direction of the price formation be observed. The wedge formation is also determined regularly by trading programs. It is also used by algorithms that are based on automated trading.

What do the wedges mean?

With these formations, traders are virtually always sure that an upward wedge will herald a decline, while a downward wedge is a sign of an upward trend. An important detail, however, is that a wedge does not say much about the extent of its signal.