Wedge Pattern Trading

Converging boundaries sloping in the same direction. Reversal versus continuation behavior depends on the specification, context, market, and sample.

Pattern Structure

Rising Wedge (Conventionally Bearish)

• Both lines slope upward, HH + HL but compressing
• In uptrend = reversal; in downtrend = continuation
• Treat downside resolution as a hypothesis and wait for confirmation

Falling Wedge (Conventionally Bullish)

• Both lines slope downward, LH + LL but compressing
• In downtrend = reversal; in uptrend = continuation
• Treat upside resolution as a hypothesis and wait for confirmation

Workflow

1. Get Swing Point Data

get_candles_around_date(symbol=<symbol>, exchange=<exchange>, interval=<interval>, date=<swing_date>)

2. Draw Wedge Boundaries (2 parallel calls)

Both trendlines slope in the same direction (this is what distinguishes a wedge from a triangle):

# Upper boundary (connecting highs — both slope upward for rising wedge)
draw_chart_analysis(action="create", drawing={
    "type": "trend",
    "points": [
        {"time": <high1_time>, "price": <high1_price>},
        {"time": <high2_time>, "price": <high2_price>}
    ],
    "options": {"text": "Wedge R"}
})

# Lower boundary (connecting lows — also slopes upward for rising wedge)
draw_chart_analysis(action="create", drawing={
    "type": "trend",
    "points": [
        {"time": <low1_time>, "price": <low1_price>},
        {"time": <low2_time>, "price": <low2_price>}
    ],
    "options": {"text": "Wedge S"}
})

3. Confirm and Enter

Confirm declining volume with get_indicators(indicator_code="mfi", symbol=<symbol>, exchange=<exchange>, interval=<interval>).

Standard: Rising wedge → short on downside break. Falling wedge → long on upside break. Volume spike confirms. Stop beyond opposite boundary. Preferred: Wait for breakout + retest of broken trendline. Enter on rejection. Target: Height at widest part of wedge, projected from breakout.

Evidence and Validation

• Treat the setup as a testable hypothesis, not a prediction. Define thresholds, entry, invalidation, and exit before evaluating outcomes.
• Calibrate on the same instrument, venue, session, and timeframe. Use closed candles and a held-out or walk-forward sample; record every variant tried.
• Include spread, fees, slippage, borrow or funding, partial fills, and latency. Reject the setup when net expectancy is not positive or depends on one narrow parameter.
• Return observed inputs, missing data, cost assumptions, entry, invalidation, exit, and a valid, watch, or no-trade status.
• Research basis: Lo, Mamaysky & Wang supports making visual patterns algorithmic and testing them conditionally; it does not support a fixed breakout probability.

Key Rules

• Minimum 4 touch points (2 per line) to validate
• Both trendlines MUST slope in the same direction — otherwise it's a triangle
• Record preceding direction and test reversal/continuation outcomes separately; context does not determine the result.
• Define “extended trend” and volume contraction quantitatively if they are used as filters

Related Skills

• triangle-patterns — Similar converging lines but different slope behavior
• multi-timeframe-analysis — HTF wedges signal major reversals