Rising Wedge Chart Pattern

Rising wedge Chart Pattern

In this lesson,  we shall discuss the following:

1.What is a wedge chart pattern ?

2.What is a rising wedge chart pattern?

3.How do we identify a rising wedge pattern ?

4.What are the techniques to trade a Rising wedge?

What is a wedge chart pattern ?

When we connect the Pivot Highs or the high points in a price chart with a straight line, and separately connect the Pivot Lows or the low points in a price chart with a straight line, we form two trend lines. If we see a pattern that the two trend lines are converging and not parallel, then this forms the wedge pattern. Basically, in a wedge chart pattern, the highs are rising at a different rate from the rate of lows falling. The wedge pattern can occur both when the price on the whole is increasing or decreasing.

This pattern signals a reverse of the trend that is currently formed within the wedge.

Wedges are similar in construction to a symmetrical triangle..

The wedge pattern is usually a long-term pattern.

There are two types of wedge pattern:

Rising Wedge Chart Pattern

Falling Wedge Chart Pattern

What is a rising wedge chart pattern?

A rising wedge chart pattern occurs in the uptrend, or when the prices are rising on the whole. The price remains confined within the trend lines of the rising wedge pattern. This type of wedge pattern is bearish, and signals that the price is likely to drop and move in the downward direction soon. The rising wedge chart pattern can be seen when there are higher highs and higher lows.

This is a bearish pattern that signals that the security is likely to move downward direction.

The rising wedge chart suggests us of possible selling opportunities.

Identifying the rising wedge pattern in an uptrend

In an uptrend, a rising wedge is considered a reversal pattern.

This occurs when the price makes higher highs and higher lows.

This is identified by a contracting range in prices.

A pattern is created as the price is confined within two lines which get closer together.

The slowing of momentum is noted and it normally precedes a reversal to the downside.

Identifying the rising wedge pattern in a downtrend .

The chart below is an illustration of a rising wedge pattern in a downtrend.

Exercise 1: Identify the rising wedge in a downtrend. Show exercise

This suggests us of potential selling opportunities.

Practice session: 

In the following exercise, you can practice how to identify a rising wedge in an uptrend:

Exercise 1: Identify the rising wedge in an uptrend . Show exercise

Trading the rising wedge:  Technique 1

In a uptrend and downtrend

Enter the market by placing a sell order (short entry) on the break of the bottom side of the wedge.

Avoid false breakouts by waiting for the candle to close below the bottom trend line and then enter.

The area where price breaks the lower support trend line and where we should place the sell order.

Number 1: Area where price has broken the lower support trend line

1- Sell order (short entry)

Where the stop loss should be placed. This is placed above the top side of the rising wedge.

Number 2: Back of the wedge

Number 3: Distance between entry (sell order-1) and

take profit point-3 (this is the same height as the back of the wedge number-2)

2 -Stop loss

3 -Take profit

The Profit target

The profit target is measured by taking the height of the back of the wedge and by extending that distance down from the trend line breakout.

Practice session:

Technique 1:

Exercise 1: Where would you place your entry, stop loss and profit target? Show exercise

Trading the rising wedge: Technique 2

Wait for the price to trade below the trend line (broken support), as in the first illustration.

Place a sell order on the retest of the trend line (broken support now becomes resistance).

Number 1: Point at which the price finds resistance at the lower part of the wedge.

1- Short entry

The chart below depicts that the stop loss would go above the new resistance area.

Number 2: Back of the wedge

Number 3: Distance between entry (sell order) es1 and take profit tp3, same height as back of wedge number 2.

1 -Sell order (short entry)

2- Stop loss

3 -Take profit

Profit Target

Similar to technique 1, the profit target is measured by taking the height of the back of the wedge and by extending that distance down from the entry.

Practice session:

Exercise 1: Where would you place your entry, stop loss and profit target? Show exercise

Nut Shell

An overview of the lesson discussed so far….

The rising wedge pattern signals a possible selling opportunity either after an uptrend or during an existing downtrend .

The entry (sell order) is placed when the price breaks below the bottom side of the wedge or when the price finds resistance at the lower trend line.

The stop loss is placed above the back of the wedge.

The take profit target is measured by taking the height of the back of the wedge and by extending that distance down from the entry.

Benefits of trading with Wedge Patterns

The benefits of trading wedge chart pattern are as follows:

1. The wedge pattern, especially the rising wedge pattern in uptrend, mostly does not need confirmation before a trade is taken. This is because the rising wedge stock pattern breaks and drops quickly to their targets. This saves time for the traders.

2. Compared to other patterns, the wedge patterns are low risk.

3. The margin for profit is also high when trading using a rising wedge stock pattern.