Classic Reversal Pattern You Must Know
☑️WHAT IS THE RISING WEDGE PATTERN?
The rising (ascending) wedge pattern is a bearish chart pattern that signals a highly probable breakout to the downside. It’s the opposite of the falling (descending) wedge pattern (bullish). A rising wedge can be both a continuation and reversal pattern, although the former is more common and more efficient as it follows the direction of an overall trend.
The rising wedge consists of two converging trend lines that connect the most recent higher lows and higher highs. In a rising wedge, the lows are catching up with the highs at a higher pace, which means that the lower (supporting) trend line is steeper.
☑️KEY FEATURES
• The price action temporarily trades in an uptrend (the higher highs and higher lows)
• Two trend lines (support and resistance) that are converging
• The decrease in volume as the wedge progresses towards the breakout
The third point is seen more as a boost to the validity and effectiveness of the pattern, rather than a mandatory element. And it is applicable either for stocks trading mostly.
☑️SPOTTING THE RISING WEDGE
Identifying a rising wedge is not so difficult. As a first step, you should eliminate all types of wedges that are present in the sideways-trading environment. The ascending wedge occurs either in a downtrend as the price action temporarily corrects higher, or in an uptrend.
☑️TRADING THE RISING WEDGE
Trading the rising wedge pattern is pretty easy. After we correctly identified the pattern all we need to do is wait patiently for the breakout of the wedge to the downside. After the breakout is confirmed(usually at least a 4H candle needs to close below the broken level) we can place a limit order to short the pair on a pullback giving us a better risk to reward ratio. The correct Stop Loss should be placed above the last higher high established by the wedge before the breakout. What concerns the Take Profit level, it must be based on the technical levels below( If there are any). If not, then we might use Trailing Stop or just choose a minimal acceptable RR of 1:1,5
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