How To Recognize and Trade Rising Wedge Patterns

Shorter timeframes, such as intraday charts (e.g., 15-minute or 30-minute charts), are often used by day traders seeking quick profits from short-term price movements. Medium-term traders may opt for hourly or 4-hour charts, while long-term investors may analyze daily or weekly charts to capture broader market trends. Approach rising wedge patterns with realistic expectations and appropriate risk management strategies.

Following a rising wedge breakdown, prices often decline significantly. The typical measured move equals the height of the pattern projected rising broadening wedge pattern downward from the breakdown point. However, market conditions and support levels influence the extent of the decline. Strategic trade execution requires precise entry and exit planning. Conservative traders often wait for a confirmed breakdown below the lower trendline before entering short positions.

1. The key characteristic of this pattern is that the support line slopes upward at a steeper angle than the resistance line, creating a wedge shape that narrows as the price progresses.
2. A rising wedge is almost always bearish, however, in certain conditions a rising wedge can break bullish.
3. Rising wedges are most often of the converging type, not to be confused with the ascending broadening wedge (also called an expanding wedge pattern).
4. Bulls get the name from goring upward with their sharp horns, while bears swat downward with their fierce claws.
5. Its counterpart, the falling wedge, indicates a potential reversal at the end of a downtrend or a continuation during an uptrend.
6. On average, you may only find one tradable wedge pattern each month.
7. Rising wedges that form on daily or weekly charts tend to produce more reliable targets than those on shorter time frames like five-minute or hourly charts.

If it doesn’t match up with one of these areas, I’ll choose the closest support or resistance level without exceeding the measured move. While not an exact science, as you can see from the NZDUSD chart above, this method of finding a profit target can be very useful. Instead, we’re entering short as soon as we have a confirmed breakout. One significant difference between the two is that the narrowing wedge has a definable end point whereas the broadening wedge does not.

Falling Wedge

The resistance is the level where the sellers are likely to step in and start selling the security. The support is the level where the buyers are likely to step in and start buying the security. This shift typically occurs after a period of consolidation or range-bound trading. While not all wedge varieties carry the same accuracy rates, their unique properties make them a trader favorite. The more touches and evenly spaced they are improves wedge validity. Become consistently profitable with our structured online trading courses.

1. The best patterns tend to form on the 1-hour chart or higher and occur after an extended move up or down.
2. To find the target of a rising wedge, traders can take profit when price reaches the low point where the pattern first began to form, or at various support levels on the way down.
3. The first step in identifying this pattern is to look for a series of highs and lows.
4. By the end of this article, you’ll understand how to identify this pattern on a candlestick chart and how to apply it in your trading strategy.
5. Expanding wedge patterns feature increasing volatility as the pattern evolves.
6. A trader can take an entry at the break of the support line or wait for a potential throwback.

False Breakouts and Partial Rises within a Range-Bound Market

Join me as we traverse the world of wedge stock patterns to uncover their secrets. You’ll learn new skills for identifying these high-probability chart formations and profiting from them in your own analysis. After the two trendlines have been formed the pattern can be identified. When price rises off the lower trendline, and doesn’t reach the upper trendline before falling back to the lower trendline. The lower trend line should fall more steeply than the upper trendline thus forming the broadening wedge. The target is the full height of the pattern, from the lowest low to the highest high forming the trendlines.

Therefore, you should wait for a pullback before entering a trade or trail your stop loss to breakeven. Once you have identified this series, you will then need to look for the divergence between the highs and lows. This pattern can take a long time to form, so patience is your key to success.

Wedge Patterns – a Trader’s Guide

With this in mind and for purposes of this lesson we’ll be referring to the formation as a bearish reversal. But know that it can also trigger a bullish reversal if found at the bottom of a range. On that note, when it comes to the Forex market, I’ve noticed that the broadening wedge develops at the upper end of a range far more often than at the bottom. As you can see, the price came from a downtrend before consolidating and sketching higher highs and even higher lows. Notice how price action is forming new highs, but at a much slower pace than when price makes higher lows.

With prices consolidating, we know that a big splash is coming, so we can expect a breakout to either the top or bottom. If you’re seeking alternatives, consider the bear pennant pattern. This pattern can also offer valuable insights into market behavior and can be particularly useful in a bearish market.

Trending

Few trading patterns are as easy to identify and trade as the rising wedge pattern. For a broadening ascending wedge the measure rule would place our take profit at the lowest low inside the formation. A descending broadening wedge is a bullish continuation formation and appears in the middle of an uptrend. And this pattern completes when the price breaks the resistance line. A broadening wedge pattern is a price chart formations that widen as they develop. In other words, in a broadening wedge pattern, support and resistance lines diverge as the structure matures.

The key characteristic of this pattern is that the support line slopes upward at a steeper angle than the resistance line, creating a wedge shape that narrows as the price progresses. The rising wedge pattern is a popular chart pattern that traders and investors often look out for in technical analysis. It can indicate a potential reversal or continuation of a trend, depending on where it appears in the market.

In some cases, it can take months for one to develop that’s worth trading. But with the right risk to reward ratio, the potential reward can be well worth the wait. Notice how I took the height of the entire pattern and measured an equal distance from the breakout. In this case, the height was 93 pips and the market ended up moving a total of 104 pips. Notice how we’re entering on a retest of a former intraday swing low.

Start your trading journey with Funded Engineer and receive an account of up to $250k. Pullbacks into the pattern after breakout do occur regularly so place your stops accordingly. Swing traders can trade the pattern from top to bottom and from bottom to top. If there is a lot of “white space” in the pattern then it will be tricky to identify.