The rising wedge pattern is both a continuation pattern and a reversal chart pattern, based on the location of its appearance within a trend. The pattern is found occasionally and is completely tradeable as it provides the best entry point, stop loss, and takes profit levels. As a result, forex traders can successfully SELL according to the rising wedge pattern. The pattern is used by automated chart pattern scanning software for easy identification. The pattern occurs in all intraday time frames and the daily, weekly, and monthly price charts and is a BEARISH chart pattern.
The pattern can be easily identified due to the structure of the pattern so it is easily tradeable by new forex traders. However advanced forex traders can use the pattern and incorporate it to trade BEARISH trend following strategies and reversal trading strategies. The rising wedge chart pattern is a BEARISH pattern so forex traders can use the pattern to identify the best SELL entry point. Moreover, the pattern can be used for multi-time-frame forex trading strategies. A rising wedge pattern if spotted in a higher time frame chart like the daily or H4 time frame chart can be plotted in the higher time frame
chart and then identified in a lower time frame chart to identify precise market entry points. Similarly, the price action surrounding the stop loss levels and take profit levels in a lower time chart time frame can be used by the trader to assist for early exits
- What Is A Rising Wedge Pattern?
- How to Trade Rising Wedge Pattern in An Uptrend-Reversal Pattern
- How to Trade Rising Wedge Pattern in A Downtrend-Continuation Chart Pattern
- Rising Wedge Pattern Example
- Rising Wedge Pattern vs Falling Wedge Pattern
- Rising Wedge Pattern in Stock Trading
- Application of Chart Pattern Scanners
- How Reliable Is the Rising Wedge Pattern
What Is A Rising Wedge Pattern?
A Rising Wedge pattern consists of a pair of ascending trend lines. And a series of higher lows and higher highs, which continuously contract. The Rising Wedge pattern is a bearish chart pattern and consists of the following components. The Rising Wedge pattern in an uptrend indicates a price reversal, while the formation of the pattern in a downtrend indicates a continuation of the trend. The technical chart pattern can be traded successfully by technical analysis and with pattern guidelines.
How to Trade Rising Wedge Pattern In An Uptrend – Reversal Pattern
1. Current Trend: The pattern forms at the top of an uptrend, so there should be an established uptrend already in place. So traders should identify the presence of an uptrend to validate the pattern.
2. Resistance line: The upper trend line which acts as a resistance line should slope upwards with the price hitting higher highs and lower highs consecutively.
3. Support line: The lower trend line slopes upwards with a higher angle than the upper trend line and acts as a support line.
4. Contraction area: This important feature shows the trend lines converging towards each other as the consolidation area progresses. During this period the price makes higher highs and higher lows. The price should effectively touch and bounce from the trend line at least twice to make it a valid trend line.
5. Support line break: As the price reaches the end of the pattern it breaks the support line. The support line breakout should be validated using the support line breakout rules, since there may be false breakouts. A sustained breakout of the support will lead to the price reversal and a rewarding trade on the other hand a false breakout will trigger the stops.
6. Volume: Volumes associated with a breakout can be used by traders to confirm the breakout as the increased volumes indicate fresh buyers entering the market or the current players going for a new buying round.
How to Trade Rising Wedge Pattern in A Downtrend – Continuation Chart Pattern
1.Current Trend:The pattern forms at the top of a down trend, so there should be an established downtrend already in place. So traders should identify the presence of a downtrend to validate the pattern.
2. Resistance line: The upper trend line should slope upwards with the price hitting higher highs and lower highs consecutively and act as a resistance.
3.Support line: The lower trend line while sloping upwards acts as a support line and should be steeper than the upper trend line.
4.Contraction area: This important feature shows the trend lines converging at the end of the pattern. During this period the price makes higher highs and higher lows.
5.Support line break: Once the price breaks the support line, it should be validated using the support breakout rules.
6.Volume: Increased volumes during the breakout can be used by traders to confirm the breakout.
All the above-mentioned components are important for successfully trading the bearish rising wedge pattern. So traders must learn to identify the individual components and learn the corresponding features without fail.
Also Read: Trendline Trading
Rising Wedge Pattern Example
The above EURUSD H4 chart shows the Rising Wedge Bearish Chart Pattern in action. The pattern is formed in an established uptrend so the technical chart trader will anticipate a price reversal if the pattern completes and is validated. The price created higher highs and lower highs and assisted in the formation of a rising uptrend line and a rising lower trend line. However, the lower trend line is steeper than the upper trend line. The price repeatedly bounces from both the trend lines, more than twice and validates the trend line. The higher highs fail to pull the price much higher, rather fail and reverse to break the lower support line. The breakout of the lower trend line is confirmed further as the price stays below the support line. This shows that the support line has not turned into a resistance line and is able to keep the buying pressure. The sustained increase in selling pressure brings the price lower.
The best Stop loss of the pattern is above the upper trend line. A break above the upper trend line will bring in fresh buyers and may push the price much higher, so a break above the upper trend line should be the best stop loss point.
Another important feature of the pattern is that it provides the forex trader with a take profit measurement. The best take profit is the longest distance between the two trend lines. As seen in the above image the longest distance is at the beginning of the pattern. Technical analysts can measure the length and find out the projected take profit level. The projection of the take profit level is measured from the entry point.
For example, one of the most popular indicators is the Relative Strength Index indicator. It is a momentum oscillator that tells you the momentum behind a market trend. Its value ranges from 0 to 100, with anything above 70 indicating of overbought asset and 30 indicating oversold asset. With this information, when you see that the asset is overbought, you know that there is a huge selling pressure, so you might want to enter a sell position. The best thing about the RSI indicator is that it helps you spot trend reversals before it happens, so you have a bit of time to set everything up to capitalize on the subsequent price movement.
From the above trade examples, it is imperative that the Rising Wedge Pattern provides the entry point, stop loss and take profit points very clearly, so even new forex traders will be able to trade the pattern easily and avoid confusion.
Rising Wedge Pattern Vs Falling Wedge Pattern
The falling wedge pattern is the opposite of the rising wedge pattern and can be applied in all technical charts. The Rising wedge pattern is a Bearish pattern while the Falling wedge chart pattern is a BULLISH chart pattern. Both can be traded easily using the set of rules and can be spotted easily even by new forex traders. Both provide simplicity in identifying and trading and have the same success level. So forex traders can trade both of the patterns with equal confidence.
Rising Wedge Pattern In Stock Trading
The pattern can be applied to all financial charts, so traders can apply the same rules and trade using stocks, futures, options, and forex charts. Furthermore, they can be applied to all chart time frames no matter intraday or short term, or long-term charts.
Application Of Chart Pattern Scanners
The chart pattern is standard in terms of the trend lines or support and resistance trading rules; similarly, the stop loss levels and the take profit levels are measurable. This allows chart pattern scanning software’s to identify and locate them automatically. Once located automatically the trader can decide to trade them manually or apply auto trading software to trade the chart pattern according to the set rules. In fact, there are many software vendors providing chart pattern scanning software bundled to automatically scan hundreds of candles and deliver results instantly. New forex traders can use the software until they get trained to spot them with ease. On the other hand, advanced forex traders can use the pattern in complex technical trading strategies.
Also Read: Best Paid Stock Screeners
How Reliable Is The Rising Wedge Pattern
The rising wedge chart pattern delivers results most of the time. However, like all technical chart patterns, it is also prone to failures due to market mechanics and fundamentals. Traders should approach the breakouts with caution and validate them properly because false trend line breakouts occur frequently in lower time frame charts. On the other hand, patterns forming in higher time frame charts and patterns formed during larger trends tend to provide better forex trading results.
As discussed above the Rising wedge pattern is a Bearish chart pattern that can be traded by new and advanced forex traders. The pattern has a standard set of rules to be followed and delivers the best trading results if followed properly. The pattern is easy to identify and is completely tradeable as a standalone pattern as it provides the entry points, stop loss and take profits. However, for best results, it is recommended to use additional technical indicators to confirm the components of the rising wedge forex pattern. This chart pattern is reliable as it provides results consistently and occurs frequently so it is in the best interest of traders of all levels to understand and study the pattern before trading in a LIVE environment.
Also Read: THE 28 FOREX PATTERNS COMPLETE GUIDE