A wedge bounce is when price hits a wedge trendline and reverses back into the pattern.
I’ve studied chart patterns and traded them for years, so I’ll explain wedge bounce in clear, practical terms. This article breaks down what a wedge bounce is, why it matters, how to spot one, and how to trade it safely, with step-by-step rules, real examples, and hands-on tips you can use now. Read on to learn the signals, the mistakes to avoid, and a simple checklist to improve your outcomes when you trade a wedge bounce.
What is a wedge bounce?
A wedge bounce happens when price moves toward a wedge boundary and then reverses direction off that boundary. A wedge is formed by two converging trendlines that slope either up or down. The bounce is a short-term reversal that keeps the price inside the wedge or pushes it back toward the wedge midpoint.
A bounce can be small or strong depending on volume, momentum, and broader trend context. Traders watch wedge bounce to get entries with defined risk. The wedge bounce can either delay a breakout or signal a likely breakout direction soon.
Types of wedges and how the bounce differs
There are two main wedge types, and each creates a different kind of wedge bounce.
- Rising wedge
- Trendlines slope up and converge. A wedge bounce often shows weak buying after touching the lower line and can signal a bearish break.
- Falling wedge
- Trendlines slope down and converge. A wedge bounce off the upper line often shows weak selling and can signal a bullish break.
Bounce behavior changes with trend context. In an uptrend, a falling wedge bounce tends to be bullish. In a downtrend, a rising wedge bounce is more likely to fail and turn into a stronger drop. Watch volume and momentum during the bounce for confirmation.
How to spot a wedge bounce — step by step
Follow these steps to find a quality wedge bounce setup.
- Identify the wedge
- Draw two converging trendlines that touch at least three swing points.
- Confirm the pattern forms over a meaningful timeframe.
- Watch the approach
- Observe how price approaches the trendline — quickly or slowly.
- Notice if candles show rejection wicks at the line.
- Check volume and momentum
- Look for lower volume into the wedge and a volume increase on the bounce.
- Use RSI or MACD to confirm momentum is shifting on the bounce.
- Confirm with a trigger
- Use a clean reversal candle, a small breakout into the wedge, or a pullback as your entry trigger.
- Avoid entering on a single weak candle without supporting indicators.
A proper wedge bounce has clear price rejection at the trendline, supporting volume or momentum, and a reasonable stop level below/above the recent swing. The clearer each item is, the better the wedge bounce trade.
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Rules and an entry-exit strategy for trading a wedge bounce
Here’s a simple, repeatable plan you can use for wedge bounce trades.
- Entry rule
- Enter after a confirmed rejection candle or a small reversal pattern at the wedge line with supportive volume or momentum.
- Stop-loss rule
- Place stop beyond the recent swing low (for bullish bounce) or high (for bearish bounce) and allow room for typical volatility.
- Profit targets
- First target: the wedge midpoint or the nearest horizontal support/resistance.
- Second target: the opposite wedge trendline or a measured-move level.
- Position sizing
- Risk a small fixed percent of account balance per trade, typically 0.5–2%.
Use a trailing stop once the first target is hit to lock profits. If the wedge bounce leads to a breakout in the same direction, adjust stops to capture larger moves. A clear plan prevents emotion-driven mistakes when a wedge bounce looks tempting.
Common mistakes and how to avoid them
Avoid these frequent errors when trading a wedge bounce.
- Treating every touch as a trade
- Wait for a clear rejection signal and confirmation.
- Ignoring volume and momentum
- A bounce without volume or positive momentum is likely weak.
- Over-tight stops
- Give the trade reasonable space; tight stops get taken out by noise.
- Chasing breakouts after a failed wedge bounce
- Step back and reassess rather than forcing a new entry.
Be patient. A few well-chosen wedge bounce trades beat many small low-probability entries. Learn from losing trades by logging why the wedge bounce failed.
Personal experience: lessons from trading wedge bounces
I used wedge bounce setups often in swing trading and learned key lessons the hard way. Early on, I entered at the first touch and watched price chop around. After adding momentum and volume checks, my win rate rose noticeably. One trade on a falling wedge bounce showed a weak sell-off and strong volume on the bounce; I entered, used a tight risk, and rode the move to the wedge top for a solid gain.
The main lessons I share:
- Wait for confirmation rather than the first touch.
- Use small position size until you prove the setup works in your market.
- Keep a trade log to track what signals actually helped predict successful wedge bounces.
These practical changes improved my consistency when trading wedge bounce setups.
Tools and indicators that help confirm a wedge bounce
Use these tools to validate a wedge bounce.
- Volume
- Confirms the strength of the bounce when it increases on reversal.
- RSI (Relative Strength Index)
- Look for bullish or bearish divergence at the wedge boundary.
- MACD
- Watch for crossovers that match the bounce direction.
- Moving averages
- Short MAs can act as dynamic support/resistance during a wedge bounce.
- Candlestick patterns
- Pin bars, engulfing candles, or strong reversals improve odds.
Combine two or three indicators for confirmation. Too many signals can confuse; pick the few that match your style.
Practice checklist before trading a wedge bounce
Use this quick checklist each time you see a potential wedge bounce.
- Pattern quality: trendlines touch at least three swings.
- Context: check higher timeframe trend for alignment.
- Confirmation: rejection candle plus volume or momentum signal.
- Risk: calculate stop size and position size ahead of entry.
- Targets: set realistic first and second targets before entry.
Tick these boxes and you’ll avoid many impulsive entries that kill performance. A checklist builds discipline and reduces stress when the market moves fast.
Frequently Asked Questions of wedge bounce explained
What exactly causes a wedge bounce?
A wedge bounce happens because buyers or sellers reject the trendline, often due to short-term profit taking or a shift in sentiment. The converging trendlines concentrate pressure, so one side often steps back and forces a reversal inside the pattern.
Is a wedge bounce a reliable trading signal?
It can be reliable when combined with volume, momentum, and trend context. Alone, a wedge bounce is only a signal — use confirmation and strong risk management to improve outcomes.
How do I set stops for a wedge bounce trade?
Place stops beyond the recent swing high or low that the wedge touch created, allowing for normal volatility. Size your position so the stop loss equals a small percent of your account risk.
Can wedge bounce lead to a breakout?
Yes. A wedge bounce can precede a breakout because the pattern compresses price and builds energy. Watch volume and follow-through after the bounce to detect an imminent breakout.
What timeframes work best for wedge bounce trading?
Wedge bounce works on multiple timeframes, but higher timeframes give stronger, more reliable signals. Use lower timeframes for precise entries after the higher timeframe confirms the pattern.
Should I trade wedge bounce in all markets?
You can trade wedge bounce in stocks, forex, crypto, and commodities, but adapt parameters to each market’s volatility and hours. Test the setup on historical data to see how wedge bounce performed in that market.
Conclusion
A wedge bounce is a clear, tradable event when price rejects a wedge trendline and reverses direction. Use simple rules: identify quality wedges, wait for confirmation from volume or momentum, manage risk with defined stops, and follow a checklist. Practice on charts and keep a trade log to improve. Start small, test the wedge bounce setup in your market, and refine your rules with each trade. If this guide helped, try a paper-trade a few wedge bounce setups or share your questions and experiences in the comments.
