Rising Wedge Pattern: The Ultimate Guide

The rising wedge pattern is an effective setup that can lead to profitable trading opportunities.

We know that stock's price moves tighten between two parallel sloping trend lines that look like triangles or the wedges form.

Rising wedge patterns are quite common in stock markets, foreign exchange markets, futures markets, and futures of foreign exchanges and may already be familiar to many day traders.

When traded correctly, the rising wedge, also called ascending wedge, can generate huge profits, as we explained in this blog post.

What is the rising wedge?

A rising wedge begins wide at the bottom in bearish stock trading, contracts as trading ranges narrow and prices rise.

As a result, traders can identify potential selling opportunities as momentum slows, which typically precedes a reversal to the downside.

A downward trend line is caught between two upward trend lines connected by a converging pattern of support and resistance. A resistance line is above a support line, and a support line is below a resistance line.

A downward price trend typically follows as soon as a rising wedge forms. On the other hand, falling wedges indicate that the price of securities is reversing.

Rising wedges can also be classified as continuations.

It will still slope up in this case, but that slope will oppose the prevailing downtrend. Rising wedge patterns are bearish no matter what type they are (continuation or reversal).

Important features of the rising wedge pattern

1. Trading this pattern accurately is one of the most difficult things.

2. With each successive low, the pattern loses downward momentum, creating a bullish feeling.

3. By breaking the upper resistance, we can see that buyers have taken over, and demand has won. 

4. The price of a security cannot be predicted with any certainty. However, the target price can be expected using other technical analysis techniques.

5. There is relatively little risk associated with falling wedge patterns. This is why professional traders prefer them.

The Rising wedge pattern: how to identify it?

There is some confusion in identifying the rising wedge pattern since it is interpreted both as a continuation and reversal pattern. Different observation dynamics are mandatory in both scenarios.

Continuation pattern:

1. Downtrend established

2. Consolidation wedge-formed

3. Connecting higher highs and lower lows using a trend line pointing in the direction of narrowing

4. Determine divergence between price and volume using volume functions - Traders can also use MACD

5. Other technical tools, such as oscillators, can confirm an overbought signal

6. Look for the break as below support for the short entry

Reversal pattern:

1. Built upward trend

2. Rising wedge consolidation formation. 

3. Linking higher high and lower low by creating trend lines into a narrow point

4. Confirm the price and volume divergence using the volume function - MACD can also be utilized

5. The overbought signal can be confirmed by other technical tools, such as oscillators

6. Find the break in the lower support for the short entry

Rising wedges can yet also be identified during a downward market trend. However, in contrast to any of the rising wedge patterns in the market uptrend, one can easily observe an overall temporary price movement within the opposite direction during the downtrend. This is known as a brand retracement.

Advantages and disadvantages of the rising wedge pattern

Advantages

• Easy identification for the experienced traders

• Occurs more frequently within the financial markets

• Defines clear stop with the deep entry and limit levels

• Opportunity in favor of the favorable risk-reward ratios

Disadvantages 

• It can be a lot ambiguous to the novice traders

• It is sometimes identified incorrectly

• Requires some extra confirmation through the use of technical indicators or a few oscillators

Trading strategy to follow for rising wedge pattern

Simply wedge trading will not bring you forex profit until you sell it on the stock exchanges. The combination of forex uses another technical parameter with a strategy to improve the winning ratio.

For example, using a divergence of MACDs and RSIs with a rising wedge pattern can improve their profits. Traders can use support and resistance as supply and demand as a confluence to sell that pattern. I will explain using both the indicator and the price action. I prefer trading with net prices. 

Divergence of MACD and RSI

If the price is much higher and continues to consolidate internally as a wedge angle, there should be a difference between the RSI and the MACD. Divergence also indicates future changes. We will use the wedge pattern and divergence of MACD and RSI as confirmation.

If there is no difference between MACD and RSI, we will skip the wedge pattern.

Key levels

This is the recommended method with a wedge rise and fall pattern. Price action is the most effective forex trading strategy. 

For example, using supply and demand zones or support and resistance zones with a rise or fall wedge will increase the winning ratio in this setting. This is because there are many opportunities to return from a key level.

How to trade a rising wedge pattern?

 There are many different trading strategies in the Rising Wedge model. They have different risk/reward ratios. You can even choose the technique that best suits your trading style or combine several different strategies to find the entry and exit points of the trade.

 When you enter the market:

Selling below the support line

Some traders place a sell order when the market closes below the support line and place a stop-loss order above the breached support level. This technique has a good risk-benefit ratio, but the input signal may be noisy and often emit false signals.

Sell when the support line is resistant

Another major strategy suggests selling when the price after the closing below the support line finds resistance on the previous support line and closes just below the new resistance line. 

The advantage of this powerful technique is that you can sell the shares at a higher price as the directive grows, but on the other hand, with a sharp collapse, the cost can no longer exceed the previous directive and at all missing entry points. 

Selling resistance below the support line

More traders prefer to wait until the price penetrates the next level of support below the support trend line, and they still want to see this latest break. Support has been retired and has become new resistance. 

They enter a sales order when the price moves below this second level of support, and they enter a stop order to lose support.

What do rising wedges look like?

The shape of the rising wedge pattern is similar to a slice of pizza, which is created by connecting two trend lines. This wedge pattern cuts several higher and lower lows.

The trend line of resistance should cover the higher points of the pattern. At least two higher lines are required for the resistance line. Similarly, draw a trend line of support that covers the higher, the lower. You need at least two swing lows to get a supporting trend line.

After drawing the resistance and trend support lines, you should be able to see the triangular shape, which is also a wedge. An important detail of the rising wedge pattern is that the top of the triangle should face up. Therefore, the trend line of resistance must be ascending to prove a consistent pattern. 

Rising wedge: causes and indications

The rise of the wedge pattern is usually observed after long trends, which means that it may be advantageous for cryptocurrency trading. For example, if the crypto trend changes too fast, the wedge pattern can signal an upcoming trend change.

Strong trends are hence the result of an imbalance happening between buyers and sellers. Buyers and sellers carry out transactions at all costs. Suppose there is an imbalance between many buyers and no sellers. 

In that case, the trader should adjust the price immediately to a higher level, which is expected to attract more sellers. 

If a higher price fails to attract more sellers, the price will continue to adjust quickly. This speed adjustment created rapid growth, which attracted many buyers who feared losing a strong trend (known as FOMO or fear of loss).

As this strong trend develops and large crypto whales are no longer interested in buying, the price will begin to adjust, FOMO buyers warn. Each new rise underwent a different correction and attracted more buyers.

At this point, the rise of the wedge pattern has taken place, and the market is ripe for a big correction. 

Confirmation of the rising wedge pattern

Within the newly emerging good pattern, you will see the following:

• Waves circulating and overlapping

• Higher high and higher low

• Ascending trend line of resistance

• Ascending moving support line

• Resist and support trend lines that lead and intersect as extrapolations

If you find a pattern in any of these parts, you're likely looking at an emerging wedge pattern. Although these are instructions and no guarantees, you can also see a few things.

How can you practice the rising wedge pattern?

The best place to practice any strategy is a simulator on the market. We recommend browsing more charts with smoother chart names. Place your tool on the trend line and see how many wedges of rising and fall you can see.

Draw them and then note the price actions of the puncture or collapse and identify what makes them a bear wedge or a bull wedge.

As you do so, analyze the broader context of the photo. For example, is the stock in an upward or downtrend? What does a longer time frame, such as a 15m, 1-hour, or daily chart, look like? Also, what does the volume look like during the pattern?

You may often find that the number decreases during bear turns, while it may increase during bear turns.

Over time, you will need to create a large subset of simulated trades to determine your chances and ethics of success before you can invest money.

Limitations of the rising wedge pattern

Although an increase in the wedge pattern can indicate very good sales opportunities. The pattern is not 100% accurate, and some limitations need to be known.

First, the resulting wedge pattern is easy to cut out, but it is difficult to confirm it until the pattern progresses almost 2/3 to completion. It implies that you must constantly monitor the market to ensure that the wedge lift brands and signals are in place.

Once the pattern displays many specific brands, you can set up a short sale opportunity as a trend line breaks below the support level. Although the shape is easily recognizable, it can be difficult to capture it as it is formed. As a result, you probably won't see how any shapes develop until most of the pattern is completed.

Second, small cryptocurrencies are easily caught by bad signs and sometimes by bad sources. These scenarios suggest extremely high volatility in price charts. When you see these bubbles, it can be challenging to determine exactly what pattern they are forming.

Smaller cryptocurrencies often do not have enough liquidity to maintain a stable price. The result is rapid price fluctuations, which create high volatility. This is likely to happen in smaller time frames on the map.

In these situations, it is a better option to replace the line graph with one or two slides smaller than your current one. 

Similarities between Rising and Fall Wedge

Ascending and descending wedges are wedge patterns indicated by converging trend lines on the candlestick chart. These two trend lines are designed to consolidate the price until it is compressed and breaks the wedge.

Wedge trend lines are considered useful indicators of potential change, both in the rise and fall of wedge patterns.

Differences between rising and falling wedge patterns 

Although wedge patterns are rising wedges and falling wedges, they have some differences. For starters, they are just the opposite. And Rising Wedge, hence the name, rises in price as trend lines consolidate the asset upwards until it marks the bottom of the wedge.

On the other hand, a falling price wedge consolidates briefly until the asset is finally pushed up to leave the top of the wedge.

How do you define a falling wedge pattern?

The falling wedge pattern is fully observed when the market releases low lows and highs accompanied by a narrow spread. When a formula is perceived as a declining trend, it is called a reversal because it indicates that the declining trend has lost momentum. 

If this pattern is observed to increase, it is known to be bullish as the market declines as the correction progresses. Thus, it suggests that the strength of the negative trend is declining, and progress will soon begin again.

Both sides of the downward trend will move down from left to right, and the upper line will gradually descend further to the lower line. Due to falling prices, the number continued to decline, and business processes slowed down.

They soon reached a turning point, which caused a change in reading.

Benefits of doing trading with wedge patterns

Patterns such as the volatility pattern on the wedge chart seem to be useful in predicting the overall price trend of a security. However, some market studies have shown that the trend is a slowdown. This means that a bearish piercing for the rising wedge and a bull piercing for the falling wedge appear.

However, studies have also shown that in more than 65% of cases, a falling wedge is a more reliable technical indicator than a rising wedge.

Because each wedge chart pattern - including emerging wedge chart patterns - converges in a smaller price channel. Thus, the distance between the stock price entering the trade and the stop loss share price is relatively small as at the beginning of the sample.

The two lines merge so that the width of the riser wedge gradually decreases. This means that you can place the stop-loss risk control at the start of the trade. Then, if the trade is successful, one leaves with a higher return than one would risk starting the trade.

Important information

• Wedges are patterns of technical analysis charts.

• Wedge patterns can go up and down.

• Rising wedge patterns usually mean future price declines. Conversely, falling wedge patterns usually mean future price increases.

• Wedges can be a confirmation of a trend or a change in a trend depending on a previous price movement.

• We need to enter the market with a wig line signal break.

• Stop-loss orders must be placed above the rising wedge and below the falling wedge.

• We need to focus on the goal of a minimum amount equal to the size of the wedge.

• Even if the wedge ends successfully, we will not close our position if the capital is still in our favor.

Bottom line

Rising wedge patterns are common among day traders and can be beneficial. Creating these patterns in price charts is an important sign that change will eventually occur.

Therefore, traders wishing to use rising wedge patterns to predict future price movements should carefully consider the length and context of the formations in which they occur. 

Thus, quantitative changes and additional technical indications are used to verify the movements they appear to signal. 

Most importantly, they should use stop loss to control the effects of erroneous signals and be prepared to adapt their strategies to changing conditions as they occur immediately.