Direct answer
A worked example of wedges shows how someone would describe and measure a wedge using a small set of hypothetical candles/points, then state the assumptions that make the description consistent. A wedge, in plain terms, is a chart pattern where two boundary lines converge over time, reducing the “spread” between them.
This article uses only non-real-time, invented numbers. The goal is not to predict outcomes, but to let you independently check the geometry (convergence), the classification (rising/falling wedge), and one main limitation (breaks can occur and the pattern can be re-drawn differently).
Mechanics: definition and what “worked” means
A wedge pattern is typically described by drawing two trend lines:
- One line connects swing lows (the lower boundary).
- The other line connects swing highs (the upper boundary).
A wedge is present when these lines converge: the distance between the upper and lower lines decreases as you move forward in time.
“Worked example” here means you:
- Pick specific time points and hypothetical price levels.
- Fit straight lines through chosen boundary points.
- Compute whether the lines converge (e.g., by comparing slopes and the gap at later times).
- State assumptions, such as: you chose the correct swing points, you used consistent line fitting, and you ignore costs/slippage because they are variable.
Simple numerical geometry example
Assume you observe five successive time points T1–T5 with hypothetical prices chosen to represent wedge boundaries.
Upper boundary (swing highs):
- (T1, 1.1050)
- (T2, 1.1045)
- (T3, 1.1042)
- (T4, 1.1040)
- (T5, 1.1038)
Lower boundary (swing lows):
- (T1, 1.1010)
- (T2, 1.1018)
- (T3, 1.1026)
- (T4, 1.1031)
- (T5, 1.1035)
Now define slopes using the first and last points (linear approximation):
- Upper slope ≈ (1.1038 − 1.1050) / (T5 − T1) = −0.0012 per 4 intervals = −0.00030 per interval.
- Lower slope ≈ (1.1035 − 1.1010) / 4 = 0.0025 / 4 = +0.000625 per interval.
Convergence check (gap narrowing): Compute the boundary gap at T1 and T5:
- Gap at T1 = 1.1050 − 1.1010 = 0.0040.
- Gap at T5 = 1.1038 − 1.1035 = 0.0003.
Because the gap decreased dramatically, the chosen lines converge under the stated points and linear-fit assumption. This is a geometric wedge description.
Evidence/example interpretation: how the same math can be classified
Using only the above geometry, you might informally describe this as a “falling wedge-like” structure on the upper boundary (upper line slopes down) while the lower boundary slopes up. In practice, wedge labels vary by how analysts define rising/falling wedge (often involving whether the overall structure trends up or down).
To keep this self-contained and verifiable, the only classification you can safely claim from the numbers above is: the boundaries converge because the gap shrinks and the two fitted lines slope in opposite directions.
If you change an assumption—like using different swing points for the boundary lines—the slopes and the gap at T5 can change. That is why a worked example must state the selection rule for points.
Material limitations and risks (including a failure mode)
One material limitation is point selection and line-fitting uncertainty. Wedge boundaries are not “native” objects in data; they depend on which highs/lows you choose as swing points and whether you approximate with straight lines.
Failure mode example: Suppose you re-pick the lower boundary using a slightly higher swing low at T3. That raises the lower fitted line, increasing the gap at later times. In the extreme, your “converging lines” could look non-converging by geometry, so the wedge description may no longer be consistent.
Additional limitations:
- Noise: Market data often has frequent small swings; different tools/users can draw different lines.
- Execution frictions and costs: Even if geometry is correct, real trades are affected by spreads, slippage, and order execution. This can turn a descriptive pattern into an inaccurate expectation.
- Incomplete information: You only know what “boundary points” are after the fact; early in real time, the pattern is still forming.
These limitations mean a wedge description is not a standalone predictive signal.
Verification and next question
To independently verify a wedge description using a worked example, you can:
- Recreate the boundary points you used.