Rising and Falling Wedge Chart Patterns: A Traders Guide IG International

Although the index continued to move lower, the trader exited the position and started looking for other rising wedge patterns. Wedge-shaped patterns in particular are considered significantly important indicators of a plausible price action reversal, which can prove to be beneficial during trading. In an uptrend, the falling wedge denotes the continuance of an uptrend. Both of the trend lines in the falling wedge are sloping downwards, with a shrinking channel signaling an impending decline. The price shows a dramatic surge upwards through the top line of the falling wedge on significant volume, while the trend lines move closer to merging.

However, by applying the rules and concepts above, these breakouts can be quite lucrative. Lastly, when identifying a valid pattern to trade, it’s imperative that both sides of the wedge have three touches. In other words, the market needs to have tested support three times and resistance three times prior to breaking out. The falling wedge is the inverse of the rising wedge where the bears are in control, making lower highs and lower lows.

A Bearish Wedge Pattern

It’s also possible for more experienced traders to misread certain trends for wedge patterns. This ensures enough testing of the support and resistance lines before the trend is confirmed. The Falling and Rising wedges provide you with the market reversal trends and critical entry and exit points that can help you significantly improve profits for each trade. Start forex trading with Blueberry Markets to kickstart your forex journey. Sign up for a live trading account or try a risk-free demo account. Stop-loss orders in a rising or falling wedge pattern can be placed
either some price points above the last support level or below the resistance level.

Similar to the falling wedge pattern in an uptrend, it allows traders to take long positions. In an uptrend, a rising wedge pattern is a reversal pattern that happens when the price makes greater highs and greater lows. Since a reversal pattern happens when the price pattern suggests a shift in the direction of the trend, a rising wedge in an uptrend is aptly deemed so.

Rising Wedge

When the price breaks through resistance, it has an average 38% price increase. Following a downtrend, the pattern is 51% successful, with an average price decrease of 9%. Generally, the rising wedge pattern always indicates a reversal in currency pair prices. However, in some cases, you’ll see that this pattern can also be used to https://www.bigshotrading.info/blog/momentum-trading/ identify a correction in a trend and thus, the continuation of the primary trend in the market. The best of all would be to draw Fibonacci support and resistance levels. Then, whenever you identify a rising wedge pattern near one of the Fibonacci levels, you can take it as a strong indication for reversal rather than correction.

However, since the equity is moving downwards, our rising wedge pattern implies trend continuation and the falling wedge pattern – trend reversal. Since the rising wedge pattern has a particularly distinct configuration, it can advise traders and investors to look out for impending top and reverse prices. A rising wedge pattern is a chart pattern that appears when the market produces highs and higher lows while also narrowing its range. The narrowing of the range suggests that the uptrend is getting weaker, hence this pattern is deemed a reversal pattern when it appears in an uptrend. This initial large price movement also determines the direction of the price explosion since pennants are continuation patterns rather than signals of an incoming reversal. Pennant breakouts can be either bullish or bearish depending on the shape of the pattern and the ongoing trend.

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Despite that, Bitcoin recovered the losses a few months later by once again rising in value. Bitcoin also recently fell off a rising wedge that had been forming since the first week of September. The breakout level of around $52,900 pushed BTC off a cliff to the $45,380 level after a mild protest of the bulls near the resistance. Wedges are not a rare sight and can be expected to be formed regularly.

A rising wedge chart pattern can be formed in an existing downtrend or an uptrend. Moreover, the use of other technical indicators with the pattern helps in further determining its validity. We covered many indicators and other trading tools in a series of articles in our blog. We’ll continue doing so in this piece dedicated to wedge patterns. As previously mentioned, crypto trading borrows much from the stock market and forex trading.

How To Trade a Rising Wedge Chart Pattern?

The figure above shows that an ascending wedge was formed on the weekly chart of the GBP/USD pair. After the downtrend, the pattern appeared with bulls trying to push the price from the downside but facing resistance at the higher level. It can be seen that the resistance coincides with the 50% retracement of the previous downtrend, How to Trade Rising Wedge Pattern which further confirms the validity of the chart formation. The rising wedge pattern is usually a weeks-long upward pattern with prices oscillating between two slopes. In the rising wedge pattern, the higher lows grow faster than the higher highs. A falling wedge is essentially the exact opposite of a rising wedge.