Rising Wedge Pattern: How to Trade the Rising Wedge

A Rising wedge pattern is a candlestick pattern that suggests a bearish reversal. Learn to identify the pattern & determine trading opportunities accordingly.

Do you find watching charts and identifying patterns complex? If yes, then you might not have the right knowledge of trading chart patterns.

But do not worry. Beirman Capital helps you in trading different candlestick pattern wedge formations. In this blog, we will discuss one of the most popular patterns: the rising wedge pattern. However, first, let’s give a short overview of the rising wedge.

What is a Wedge?

A wedge pattern is a technical analysis formation that consists of two converging lines. These lines connect the respective highs and lows over a period. The trendlines either rise or fall and occur either in a bullish wedge or bearish wedge trend.

Wedge patterns can suggest reversal or price continuation. Rising wedges and falling wedges are two types of wedges. Today, we will focus on rising wedges.

Rising Wedge Chart Pattern

A rising wedge pattern forms in a temporary uptrend during a downtrend. Under this, two rising trend lines appear on a chart. The pattern generally suggests a bearish reversal.

The price of an asset hovers between the upper and lower trendlines. The upper trendline acts as resistance and connects the higher highs, while the lower trendline serves as support and connects the lower highs.

However, the support line in a rising wedge is steeper than the resistance line. This is because the higher highs form faster than the lower highs, which leads to the ascending wedge pattern.

Key Components of Rising Wedge Chart Pattern

In a chart, trading patterns similar to wedges appear frequently. Many traders got confused at this stage. In such a scenario, the knowledge of below key features helps you in diversifying:

Trend: The rising wedge pattern generally forms in an upward trend that is started after a downtrend.
Support and Resistance: The wedge pattern consists of two converging up-slope trend lines that act like support and resistance.
Direction: A rising wedge is generally considered a bearish chart pattern. As it suggests, the price ultimately moves in a downward direction.
Breakout: The pattern forms when the price moves in a consolidated range. However, the pattern is confirmed after a breakout of the support trendline.
Volume: Rising wedge accompanied by decreasing volume. So, the trader must check the volume of a wedge to confirm the pattern.

How to Interpret Rising Wedge Pattern

Start with pattern wedge identification. Identify the converging lines connecting higher highs and lower highs.
The support trendline below should be steeper than the resistance trendline. So check it on the chart.
Once the wedge-like structure appears during an uptrend, wait for the breakout of the support trendline.
Confirm the breakout. Check whether trend lines are formed correctly, connecting the pivot highs and lows.
When a rising wedge pattern appears after an uptrend, it signals a trend reversal. If it appears during a downtrend, it suggests trend continuation. In both cases, the pattern suggests a sell position.
Traders can enter a trade just after a breakout. Place the stop loss above the upper trendline and the take profit level considering the height of the pattern wedge.

Advantages of a Rising Wedge Pattern

Easy Identification:

Identifying the rising chart pattern is relatively easy. The pattern involves the formation of candlesticks with specific criteria. A trader needs to check whether the trendlines are connecting the highs and lows properly or not. Traders can even draw the lines on a chart to see a clear picture.

Multiple ways for Confirmation:

Breakout in a downward direction and decreasing volume are the elements that can confirm the patterns. Traders can even seek the help of other technical analysis tools, indicators, and patterns for confirmation.

Application to Diverse Strategies:

Traders can use the rising wedge charting pattern irrespective of the strategy. The pattern is efficient in identifying short-term as well as long-term trade opportunities. Whether you are a day trader, scalper, swing trader, or position trader, you can make trade decisions based on it.

High-Profit Probability with Limited Risk:

Traders can even place the stop loss and take profit points using the pattern. Generally, the stop loss range is small, and the take profit range is high with this strategy. So if the trade becomes successful, the trader can earn a significant profit, and if not, then the loss will be limited.

Application to Diverse Market:

Like any other charting pattern, the wedge pattern has universal applicability. This means that traders can use the strategy to trade in forex, cryptocurrencies, stocks, indices, ETFs, or any other financial market.

Limitations of a Rising Wedge Pattern

False Breakout: Breakout is a crucial element of the rising wedge pattern. Many traders end up placing a trade as soon as the price breaks the support level. However, retesting is essential; otherwise, in case of a false breakout, a trader may suffer a loss.

Confusing: A beginner may find the pattern confusing. It has elements such as support or resistance, covering lines, breakout, volume, and confirmation criteria. Each component needs to be in a specific shape and criteria. So, it might be confusing for a new trader.

Conclusion

The rising wedge chart pattern is a remarkable technical analysis tool for finding bearish trading opportunities. Traders can surely use it to identify profitable opportunities in diverse markets for diverse strategies.

However, remember, it’s just one of the many patterns. A trader cannot rely solely on a rising wedge formation to determine buy or sell conditions.

Knowledge of other technical analysis indicators and tools is vital to achieve success. At Beirman Capital, traders can open a demo account to practice and gain confidence in identifying patterns like the rising wedge in uptrend.

FAQ

How to trade a rising wedge pattern?

Identify the pattern
Wait for the Breakout in the downward direction
Confirm the Breakout with other indicators
Open a sell position

What does a rising wedge pattern mean?

A Rising wedge pattern is a bearish reversal candlestick pattern that usually forms during an uptrend. Under this, two rising trend lines form, connecting the higher highs and lower lows, giving potential insights to the traders.

What happens after a rising wedge pattern?

A rising wedge pattern is completed with a breakout of a lower trendline. A price fall is expected after its appearance.

Is a rising channel pattern bullish or bearish?

A rising channel pattern generally appears in a bearish chart and suggests that a trader should open a sell position. So, it is a bearish pattern.