Wedges are a common continuation and reversal pattern that tend to occur in many financial markets such as stocks, forex, commodities, indices and treasuries. Sometimes they may occur with great frequency, and at other times the pattern may not be seen for extended periods of time. Our web-based trading platform allows traders to automatically scan for wedge patterns using How to Trade Rising Wedge Pattern our pattern recognition scanner. Use your discretion in assessing whether the price has contracted to form a wedge. When a falling wedge occurs in an overall uptrend, it shows that the price is lowering, (causing a pullback against the uptrend) and price movements are getting smaller. If the price breaks higher out of the pattern, the uptrend may be continuing.
By signing up as a member you acknowledge that we are not providing financial advice and that you are making the decision on the trades you place in the markets. We have no knowledge of the level of money you are trading with or the level of risk you are taking with each trade. The Rising Wedge pattern was exhibited in the Vanguard Financials ETF (VFH) over a span of approximately five months, from October 10, 2022, to March 20, 2023.
As previously stated, during an uptrend, falling wedge patterns can indicate a potential increase, while rising wedge patterns can signal a potential decrease. Notice that the two falling wedge patterns on the image develop after a price increase and they play the role of trend correction. Note that the rising wedge pattern formation only signifies the potential for a bearish move.
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Falling Wedge VS Rising Wedge
For example, if a rising wedge’s lower trend line were to break on decent volume, then a trader could consider that a bearish signal. They might then look for an opportunity to short the market near that trendline with stops placed safely above it. They could then look for a pullback to that trendline to buy the currency pair. They might also place their stop-loss sell orders to protect such a long position safely below the level of the rising wedge’s broken upper trendline.
As we mentioned, the rising wedge pattern can be identified when the price consolidates and the trend lines narrow and become closely aligned. The pattern indicates the end of a bullish trend and is a frequently occurring pattern in financial markets. It is the opposite of the falling wedge pattern that occurs at the end of a bearish downtrend and is known as a bullish pattern. The pattern typically forms after a sustained uptrend, indicating potential exhaustion among buyers. Both support and resistance trendlines are upward sloping, but they converge as the pattern matures, creating a wedge shape.
TRADING ROOMS AND LIVE STOCK TRAINING
A falling wedge occurs when the price makes multiple swings to new swing lows, but the price waves are getting smaller. This creates a downtrend where the price waves to the downside are contracting or converging. A rising wedge occurs when the price makes multiple swings to new highs, yet the price waves are getting smaller. Essentially, the price action is moving in an uptrend, but contracting price action shows that the upward momentum is slowing down. Since the rising wedge is a bearish pattern, aggressive traders will typically wait for price to break below the lower support line before they will execute a short position.
Then, if the previous support fails to turn into a new resistance level, you close your trade. One advantage of trading any breakout is that it should be clear when a potential move has been invalidated – and wedge trading is no different. To design your wedge trading strategy, you’ll need to decide when to open your position, when to take profit and when to cut your losses. We have a basic stock trading course, swing trading course, 2 day trading courses, 2 options courses, 2 candlesticks courses, and broker courses to help you get started. We will help to challenge your ideas, skills, and perceptions of the stock market.