Price patterns on stock market charts are the building blocks of technical analysis. Patterns are thought to make stock predictions regarding the continuation or reversal of price trends. Being able to identify trend continuation or reversal patterns is the primary intuitive skill of the technical analyst.

Let’s take a closer look at stock chart reversal patterns.

Reversal Patterns on stock price charts are patterns that occur at or near the end of a trending price move. These patterns are thought to foretell the end of the trend and provide the technical analysis trader a signal to close the position or enter a trade in the opposite direction of the stock market trends.  .

Rising and Descending Wedge patterns are common reversal patterns found on financial charts.  They are more open to interpretation than the double tops/bottoms in my previous article. None the less, they can be important reversal patterns that every chart reading technical analyst should understand.

The Descending Wedge can be found in both up trends and down trends.Wedges can be a powerful stock market indicator.   It is normally a continuation pattern when it appears in an uptrend.  When a Descending Wedge is seen in an uptrend, its normally called a Bull Flag or a Pennant. If it is seen in a downtrend, it’s regarded as a reversal pattern. A Descending Wedge, in  downtrend,  looks like a triangle sloping downward on the price chart. It is formed by a shrinking trading range per bar. It is drawn on the chart with two trend lines, the upper line connecting the highs, and the lower line connecting the lows forming a triangle like pattern within the downtrend. When the point of the triangle indicates the maximum price contraction per bar, is where the reversal is thought to occur. If this contraction, at the triangle point, is combined with increasing volume, a break out to the upside is believed to be imminent. The theory is that the contracting range will suddenly expand and combined with a surge in volume will push the stock upward changing the trend for a period. Here is an example of a Descending Wedge pattern is a downtrend signaling a reversal.

The Rising Wedge pattern is often a reversal signal when found in an uptrend.  It looks like a triangle sloping upwards on a price chart. The price bars show a contracting range with an upward tilt, cumulating in the point of the triangle where the trend changes to down at least temporally. There can be multiple Rising Wedges in an uptrend with each one ending with a sharp decent, then the uptrend continuing. When located within a downtrend, it is considered a continuation pattern and is called a Bear Flag. It is drawn on the chart with two trend lines. The steeper one connecting the lows with the less steep one on top connecting the highs. The lines cumulate at the tip of the triangle where the break down or change of trend is thought to occur.  Just like the Descending Wedge pattern, an increase of volume near the point of the triangle is thought to add to the likelihood of a trend change.