What Is A Wedge Pattern?

A wedge pattern is a technical indicator that combines the narrow price range with a falling and rising wedge. In this case, trades appear as converging lines, creating a wedge pattern.

The wedge may signal a countermove. Though upon breakout, it means the continuation of a trendline. Generally, the formation of this trend on a chart takes up to four weeks.

On the chart, a wedge pattern may take the shape of a symmetrical triangle pattern. Then, the price narrows its spread as the wedge approaches its peak.

What Is a Rising Wedge Pattern?

This is a chart pattern that appears when the price is experiencing higher highs and higher lows while narrowing its range. It is a common reversal pattern that can be seen between a price’s support and resistance levels during a period of price consolidation.

The rising wedge pattern is most often seen during a downtrend. It is described by two diagonal lines that indicate support and resistance. These lines converge to form a wedge. The upper line is the resistance line, and the lower line is the support line.

The pattern, like other wedges, widens near the bottom and then contracts as the price rises and the trading range gets smaller. The signal, however, is the opposite of a falling wedge, which denotes a possible upside.

Source: Warrior Trading

The slope of a rising wedge pattern may indicate two trends: a bearish reversal trend or a continued bearish trend. When it is the former, the pattern on the chart will climb and follow the ongoing trend. When it is the latter, the pattern will go up while the slope goes against the downtrend.

Elements of a Rising Wedge Pattern

These elements can be found on a rising wedge pattern chart:

• Lines: There are two diagonal lines on a rising wedge pattern: the upper lines serve as the resistance. The lower line serves as the support.

• Convergence: The boundary lines of a rising wedge pattern slope up from left to right. As the lines narrow into a sharper angle, they form a convergence.
• Bear market: This pattern is a bearish pattern that suggests a downtrend is about to resume.
• Volume: Volume declines as prices rise and the wedge changes.
• Trend: To qualify as a reversal pattern, the prior trend of reverse must be seen. The rising wedge pattern takes between 3-6 months to form and can start a long-term trend of reversal.

How to Spot a Rising Wedge Pattern

There are two ways to spot a rising wedge pattern: in an uptrend; and in a downtrend.

Identifying the Pattern in an Uptrend

In an uptrend, a rising wedge pattern is a reversal pattern indicating that the price is experiencing higher highs and higher lows. The price is between the two lines that continue to get closer to create a pattern. This signifies and precedes a reversal to the downside.

This pattern can be helpful to crypto traders to help anticipate a price fall and see a slowing momentum in price. A trader can look for potential selling opportunities as this pattern develops to avoid being caught in a bear market.

Identifying the Pattern in a Downtrend

In a downtrend, the rising wedge pattern signifies a temporary market retracement. The pattern is similar to that of an uptrend, though it’s characterized by falling prices that are confined within the two diagonal lines.

Since this pattern only shows the continuation of the downtrend in the market, traders should also consider it a selling opportunity.

Merits and Demerits Of a Rising Wedge Pattern

The merit of a rising wedge pattern is that it serves as a technical indicator to warn traders of an incoming reversal. Traders can quickly take profits or decide to weather the market. The support line of the rising wedge pattern closes together with the resistance line as higher lows are created faster. This means that it is difficult for buyers to break the resistance level.

However, a major disadvantage of the rising wedge pattern is that it is a single technical indicator that can’t be fully relied on. Traders still need to combine other trading indicators to make a good prediction of the market.

Another limitation crypto traders should consider is that this pattern can be hard to spot. You might see the pattern once the trendline is fully formed, but it is tricky to identify if the chart isn’t studied painstakingly. If a trader mistakes a rising wedge pattern with another technical indicator, he risks losing money or taking profit. Hence, it’s advisable to always follow the price chart closely before making a move.

How to Trade a Rising Wedge Pattern

A rising wedge pattern can either be in an uptrend or downtrend pattern. This indicates that crypto traders have to patiently watch the charts as this wedge pattern occurs to determine what direction the market will go.

A common method to help discern is to wait until either the support or resistance line of the pattern breaks. If the resistance line (top line) breaks, that indicates a bullish follow-on move. If the support line (bottom line) breaks, that means a bearish follow-on move.

Notice how the price breaks the support line in the image above. This indicates that a downtrend is about to occur.

One way to enter the market once you have identified the rising wedge (whether it is in an uptrend or a downtrend) is to place a sell order (short entry) on the break of the bottom side of the wedge. Wait for a candle to close below the bottom trend line before entering to prevent false breakouts.

Waiting for the price to trade below the trend line (broken support), as in the first example, is the second strategy to trade the rising wedge. When the trend line is tested again, you should then place a sell order (broken support now becomes resistance).

Source: DailyFX

This strategy, as shown in the chart above, shows the confirmation of the uptrend waning. The entry-level in the chart is placed where the support line is breached.

Conclusion

The rising wedge pattern is a useful pattern for crypto traders who are always scouting for the next opportunity in the market. Over time, the pattern has proven to be a strong signal that a reversal is about to occur.

Difficult to spot in real-time, the rising wedge pattern is sometimes mistaken for the triangle pattern. Hence, crypto traders should always consider the length and context of the formations in which the pattern occurs to be sure that their forecast is correct. Volume changes should also be carefully considered to help ascertain the price movements.