Rising Wedge Pattern - Meaning and Trading the Rising Wedge

The rising (or ascending) wedge pattern is a bearish chart formation which indicates a likely breakout to the downside. It contrasts with the falling (or descending) wedge pattern, which is bullish, and the popular wedge pattern. Although an ascending wedge can signal either a continuation of the current trend or a reversal, the continuation scenario is more reliable as it follows the direction of an overall trend.  

In this blog post, we explore the rising wedge formation, by outlining its key characteristics, how to spot it, and make sure how you trade based on the rising wedge pattern are profitable.

Where is the Rising wedge Pattern

Similar to the bullish wedge, the rising wedge is formed by two converging trend lines which connect a series of higher lows and higher highs. However, In a rising wedge, the lows increase at a higher pace, which means that the lower (supporting) trend line is steeper.

A rising wedge can appear in two distinct market contexts. When it forms during a downtrend, it is seen as a continuation pattern that reinforces the current bearish move. On the other hand, if it can occur in an uptrend, it typically signals a reversal pattern. The downward scenario is generally seen as the more popular, and more effective form of a rising wedge.

Know about the What Is a Cup and Handle Pattern?.

Strengths and Weaknesses of the Pattern

One of the main advantages of an ascending wedge pattern is its capacity to warn us of an imminent change in the trend direction. Even though the captures upward price movement, the gathering of market action means the breakout is likely to happen soon. 

Since the lows are progressing more rapidly than the highs, the wedge narrows towards the point where the two trend lines intersect. Even with downward momentum, buyers struggle to force an upward breakout, finding it difficult to break out to the upside, which triggers a move in the opposite direction. 

However, the rising wedge is just one technical indicator which only generates a signal. Like any other indicator, it cannot predict future price movements with 100% correctness. Therefore, it is most effective when applied alongside other technical indicators.

Spotting the rising wedge

Identifying a rising wedge isn't particularly challenging. As a first step, eliminate any wedge patterns that are present in the sideways-trading environment. As ascending wedges typically form either in a downtrend, where the price action temporarily corrects upward or in an uptrend.

Trading the Rising Wedge

Certainly, while there are many rising wedges examples available to trade the ascending wedge, however, here in this chart we will provide a continuity and complete the process -from identifying the wedge to executing the trade.

After identifying the wedge, we move on to the second stage, when we analyze key trade components such as the entry stop loss, and take profit levels. However, before pay more attention to the two vertical red lines. The area between them shows a decline in volume as the wedge progresses. 

When the declining trend in volume is interrupted, that's when the candle breaks out of the wedge. A higher volume accompanying the breakout provides strong confirmation behind the breakout is indeed occurring, as evidenced by a significant increase in volume figures once the breakout starts taking place.

We also have three horizontal lines:

• black (entry)
• red (stop loss)
• and green (take profit)

A trade Entry is triggered when the price achieves its first daily close outside of the wedge’s territory. Meanwhile, the stop-loss is placed within the wedge, since any movement of the price action into the inside of the wedge invalidates the pattern.

In this example, the gap between the entry and stop loss is very short because the two trend lines nearly intersect. Hence, this result is very low and the risk in this trade is extremely low. Similarly to falling wedges, the take profit level is calculated by measuring the distance between the two converging lines at the time when the pattern is first formed.

Finally, here are the trade details: the Entry is at $0.9835, the stop loss is at $0.9855, and the take profit is at $0.9695. This setup puts you at a risk of 20 pips to make 140 pips, which presents an excellent risk-reward context.

However, Given the minimal pip risk, you might also consider reducing your profit target from 140 pips to 70 pips, especially since the $0.9765 level represents a horizontal resistance. Ultimately, the Choosing decision between these two options depends on your risk tolerance and overall trading strategy. 

Conclusion - Rising Wedge Pattern

A Rising wedge pattern is a bearish chart pattern or uptrend chart pattern that forms easily at the end of an uptrend. It is easily spotted by the traders. It forms between the two upward-sloping trend lines which converge as the price moves. This pattern indicates that the upward momentum might slow down. It's important to understand that it's not 100% accurate. Traders easily review their positions and prepare themselves for changes in the trend.

Disclaimer:

• The information is based on our understanding of the stock's historical performance.
• Stock market predictions are unpredictable and can change, so expert advice is strongly recommended before investing.
• The values provided are based on predictions and may not be accurate, we recommend verifying the information with other sources.
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