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Rising Wedge Pattern

The rising wedge pattern can indicate either a continuation or reversal of the prevailing trend. This example shows a rising wedge formation after a downtrend, indicating a continuation of bearish momentum. The pattern is characterized by higher highs and lower lows within converging trendlines. Confirmation of weakening bullish strength comes from fading volume. Once the bottom trendline is broken, traders can enter short positions, with stops placed above the wedge's resistance line.

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MOHD TARMIZI
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1K views

Rising Wedge Pattern

The rising wedge pattern can indicate either a continuation or reversal of the prevailing trend. This example shows a rising wedge formation after a downtrend, indicating a continuation of bearish momentum. The pattern is characterized by higher highs and lower lows within converging trendlines. Confirmation of weakening bullish strength comes from fading volume. Once the bottom trendline is broken, traders can enter short positions, with stops placed above the wedge's resistance line.

Uploaded by

MOHD TARMIZI
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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HOW TO TRADE THE RISING WEDGE PATTERN

The rising wedge forex pattern is linked with both continuation and reversal patterns. The example below shows the formation of a rising wedge
on a forex pair depicting a continuation.

The chart above shows a rising wedge ‘continuation’ pattern after a determined downtrend. The rising wedge is outlined by the blue dashed lines
showing diminishing bull strength in the uptrend. Confirmation of the uptrend waning in strength can be seen using the volume tool on the chart
which depicts fading volume in concurrence with the ascending price in the market. This is known as divergence, showing that the upward
movement is coming to an end.

The entry point (labelled) occurs once the trend support line of the rising wedge has been breached. There are two common methods of entry:

1. Wait for a candle close below the support trend line before entry
2. Enter into the short position as soon as the price breaks the support line, regardless of the candle close

The stop level as highlighted on the chart is elected from the high point of the rising wedge located on the resistance trend line. This identification
point makes it relatively simple to locate the stop level for novice traders. The limit in this example was taken from the previous swing low giving this
trade an extremely positive risk-reward ratio.

Rising Wedges are bearish pattern and it generates bearish signal; Rising Wedge Patterns forms with Higher Highs and Higher Lows.

Rising Wedge pattern basically forms in two shapes ; If rising wedge pattern forms in an uptrend it will make reversal and if rising
wedge pattern forms in a downtrend it will make continuation.

The higher highs and the lower lows along makes a trend resistance and trend support. When breakout occurs downside, price breaks the trend
support line.

In rising wedge breakout occurs downside 60 to 70% of the time.

To confirm a true breakout, we can take help of Volume indicator. In a true breakout there will be big volume than usual.

We should use other indicators like MACD and RSI also to confirm that it will turn bearish before taking entry in a trade. (We can
see MACD divergence, RSI Divergence and where the RSI is...)
ADVANTAGES AND LIMITATIONS OF THE RISING WEDGE
ADVANTAGES DISADVANTAGES

Easy to identify for more experienced Can be ambiguous to novice traders


traders

Occurs frequently within financial Often identified incorrectly


markets

Defines clear stop, entry and limit levels Requires additional confirmation using other technical indicators and
oscillators

Opportunity for favourable risk-reward Can signify reversal or continuation patterns


ratios

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