Wedge (Technical Formation)

In crypto trading, a 'Wedge (Technical Formation)' refers to a chart pattern characterized by converging trend lines that slope in the same direction, either upward or downward. It signals a potential reversal or continuation of the current trend, depending on the direction of the breakout.

There are two main types of wedges:

1. Rising Wedge: This occurs when both the upper and lower trend lines slope upwards. It typically indicates a bearish reversal, meaning the price is likely to decline after the breakout. An example of a rising wedge is when the highs and lows of the price form higher highs and higher lows, but at a decreasing rate, forming a triangular pattern.
2. Falling Wedge: In contrast, a falling wedge forms when both trend lines slope downwards. It usually signals a bullish reversal, suggesting that the price is likely to rise after the breakout. An example of a falling wedge is when the highs and lows of the price form lower highs and lower lows, but at a decreasing rate, also forming a triangular pattern.

Example:

Let's say the price of a cryptocurrency has been in a downtrend, forming lower highs and lower lows. However, over time, the rate of decline starts to slow down, and the price begins to form a falling wedge pattern. Traders may interpret this as a potential bullish signal, anticipating a reversal in the downtrend.

Case:

Bitcoin's price has been steadily declining for several weeks, forming lower highs and lower lows. However, as the price approaches a key support level, it starts to consolidate and forms a falling wedge pattern. Traders closely monitor this pattern, waiting for a breakout above the upper trend line as a signal to enter long positions, anticipating a potential upward reversal in Bitcoin's price.