Rising Wedge Pattern
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A rising wedge pattern is a technical indicator that suggests a reversal pattern much frequently seen in the bear markets!
You can see this pattern in charts once the price moves upwards with the pivot highs or lows. They are all converging towards a single point known as the apex. Once it accompanies itself with the volume, it can even signal the trend reversal with the continuation of a bear market.
Right through this article, we will have a detailed discussion about a rising wedge pattern, how you can identify it, and its advantages in trading. So let’s dive into the discussion below.
What is a rising wedge pattern all about?
Generally, the rising wedge pattern is a bearish chart pattern. It is based on two converging trend lines. One trend line connects recent lower highs and higher highs, and the second connects recent lows.
The final result will be in the shape of a triangle that is angled upward. The opposite of the rising wedge pattern is known as the falling wedge.
This wedge pattern can often be interpreted as the bearish wedge because the low overtakes the high. In this condition, the lower supporting the trend line is found to be steeper.
Falling wedges have a similar shape to the rising wedge pattern. But the difference comes over in the implied result pattern and the triangle slope. We will discuss their differences later on in the article.
What does the rising wedge look like?
By looking at it at first glance, you will find the shape of a rising pattern similar to a pizza slice. This shape is formed when the two trend line is fully converging with one another. It thus carves a huge series of higher lows and higher highs.
The resistance trend line will cover the extreme high points of this pattern. To gain the resistance line, at least two higher highs are required.
You need to draw a support trend line to cover the higher lows. And for that sake, you should have around two swing low points.
A triangle shape will appear once you have fully drawn the support and resistance trend lines, looking like a wedge. Make sure that the triangle’s apex has to be in the upward pointed direction.
In addition, the resistance trend line should slope upwards to validate this pattern as the rising wedge.
How can you identify a rising wedge pattern?
You can identify the rising wedge patterns by eliminating all the existing wedges in sideways trading. Thus, a rising wedge pattern can occur in two different conditions, i.e., uptrend and downtrend. Moreover, a downtrend can happen due to certain higher price corrections.
Once the trader starts to create a third of the lower lows sequence, the price will move slowly up to a certain point. Later on, traders can start to push themselves for a higher price, eventually creating a rising wedge.
This series is then followed through a breakdown because buyers have now started to low the positive momentum. As a result, the gap between the two lines will narrow down by moving on a fast phase.
What is the main difference between a rising wedge and a falling wedge pattern?
Many traders are unaware of the difference between rising and falling wedge patterns. Falling wedge patterns generally occur when the price consolidation involves converging support and resistance.
Traders can identify the falling wedge pattern because of the wide left upper part. Contraction starts to appear once the price gets extra lower. This specific price action will create a tilted downward cone once both the lines have started to move closer.
Similar to the falling wedge, the rising wedge is also based on 2 convergent trend lines connecting the last higher low and the higher high.
Thus, the higher low will instantly be rallied in a rising wedge pattern to the higher high. This will result in pushing the support line to make it go steeper.
With numerous similarities, it gets complex to identify the actual difference between both wedge patterns. But still, there is some major difference that can make them both dissimilar from one another.
A rising wedge pattern will indicate that the cryptocurrency might go bearish. But on the other side, a falling wedge will indicate a bullish trend. Nevertheless, there are three major characteristics which are differentiating the rising wedge from the falling wedge such as:
- Temporary price action is going uptrend, which involves higher high and the higher low
- Two different convergent trend lines: support and resistance
- Trading volume will reduce as the pattern moves in the direction of a rising wedge breakout
The third characteristic is generally used for confirming the pattern from the rest of the traits. It even highlights how effective the pattern is.
Decreasing trading volume will indicate that the sellers fully consolidate the energy before starting a lower price action in the breakout direction.
In short, both of these wedge patterns are responsible for indicating the trading signal. But still, it will be wise to combine them with the rest of the indicators to strengthen the whole trading strategy.
Helpful trading tips to follow with rising wedge patterns
When it comes to trading with rising wedge patterns, there are different factors that you need to monitor. One major element to consider is watching price movements and patterns of the asset. Identifying the pattern holds equal attention from your side.
Once you have identified the pattern, you can, later on, proceed to know some more trade elements. This includes stop-loss, choosing the right entry points, or profit-taking. Learning about volume trading is also important.
If the trade volume has broken the downtrend, this is also the point when the candle will move out from the wedge. After the breakdown, trading volume will eventually increase.
In addition, a trader should look for the entry points after the first-day exit point. Finally, it is important to put the stop-loss inside the wedge. Every price action that reverses the inside wedge will probably candle the pattern.
This is how you can easily trade with rising wedge patterns. Moreover, it would help if you learned about technical analysis to make the right decisions in cryptocurrency trading or investment.
Rising wedge pattern: Pros & Cons
- Experienced traders can easily identify it
- It takes place more frequently in financial markets
- Indicate a clear stop with deeper entry and limit levels
- It brings upon favourable risk-reward ratios
- Slightly ambiguous for the novice traders
- It might give the incorrect results
- Need extra confirmation through the technical indicators or a few oscillators
How can you practice the rising wedge pattern?
For practising any strategy in the trading market, you can use the simulator. You can browse through more charts with smoother chart names. Locate the tool on the trend line and figure out the quantity of rising and falling wedges that you can see.
Draw all the trend lines and note down the price actions. You should be identifying better what makes those wedges either a bullish or bearish pattern.
Identifying all the aspects together will help you to see a broader picture. Thus, you can figure out if the stock is on a downtrend or an uptrend. Plus, see what the longer time frame looks like.
We highlight that the trading volume will decrease during the bearish pattern. But it will increase during the bullish wedge pattern.
With time, you should be creating a larger subset based on simulated trades to determine how much profit you can gain from the invested money.
What are the limitations of the rising wedge pattern?
A certain increase in the wedge pattern will undoubtedly contribute to some great trading opportunities. However, the pattern is not 100% accurate with the results. And for that sake, you need to know a few of its major limitations.
The resulting wedge pattern is quite easy to cut out. But it would not be easy to confirm until the wedge pattern does not progress to 2/3 to its completion.
To make it happen, you should be monitoring the market carefully. Please make sure that the wedge ensures that the signals are in their place.
You can eventually start a short trade opportunity once the wedge pattern displays the specific trades. This will happen when the trend line is below the support level.
At this point, the shape is much more recognisable. But it will be a bit difficult to capture once it starts to form. You won’t be able to see how the shapes will develop until and unless the complete pattern does not take its full form.
Secondly, smaller cryptocurrencies are easily caught through the bad signs and even through bad sources. These all scenarios will suggest higher volatility in the price charts. Once you see the bubbles, you will be uneasy about figuring out which pattern is about to form very soon.
Small cryptocurrencies do not have enough liquidity to maintain a stable price. This will result in rapid price fluctuations, which can create high volatility. Thus, this will occur mostly in the smaller time frames on the map.
In all such situations, it is much better to consider replacing the line graph in the middle of one or two slides that must be smaller than the current one.
In these situations, it is a better option to replace the line graph with one or two slides smaller than your current one.
Rising and falling wedge pattern: common similarity
Descending and ascending wedges are the wedge patterns indicated by the converging trend lines over the candlestick chart.
These trend lines are designed to consolidate the price until it is fully compressed and even breaks the wedge.
In short, wedge trend lines are known to be useful indicators having huge potential to change in both conditions of rising and falling wedge patterns.
- Wedges are the patterns involved in technical analysis charts.
- These wedge patterns can go both up and down.
- A rising wedge pattern is all about future price decline. And the falling wedge pattern is about the increase in future prices.
- Wedges can act as a confirmation of a trend or a certain change in trend based on previous price movements.
- A trader can enter a trade market with a wig line signal break.
- Placement of stop-loss orders has to be above the rising wedge and should be below the falling wedge.
- If the wedge has ended successfully, there is no need to close the position if the capital is still working in your favour.
Related questions (FAQs)
1. Is rising wedge accurate
For beginners, rising wedges are among the most complex chart patterns to trade and identify accurately. However, the trend stays inherently bullish under the series of higher lows and highs.
2. When should you use the rising wedge pattern?
A rising wedge pattern is valid only when there is a good oscillation between two bullish lines. To validate the pattern, each line should touch a maximum of twice. The line is also valid if the price line touches the support or resistance around 3 times.
3. What happens after the wedge pattern?
Being the continuation pattern, the falling wedge will somehow slope down, but this slope will act in opposition to the prevailing uptrend. Therefore, either continuation or reversal, falling wedges are known to be bullish patterns.
4. Can any rising wedge break down?
Thus, wedge patterns have the tendency to break down in opposite directions from trend lines. As a result, rising wedge patterns will have more potential to fall prices after the lower trendline breakout.
We will state that rising wedges are at a relatively high reward/low-risk ratio to end the discussion. Therefore, professional technical traders are using this indicator all the time.
But certain false patterns can often come off to act as the rising wedges. You can differentiate between a false and trust wedge pattern by looking at the price/volume divergences. Ensure that the failure is under the stance of 50% Fibonacci retrace.
Jason Morgan is an experienced forex analyst and writer with a deep understanding of the financial markets. With over 13+ years of industry experience, he has honed his skills in analyzing and forecasting currency movements, providing valuable insights to traders and investors.
Forex Content Writer | Market Analyst