What Are Rising Wedge Patterns and How to Trade Them?
Rising wedge patterns are bigger overall patterns that form a big bullish move to the upside. They form by connecting 2-3 points on both support and resistance levels. Price action forms a big up channel. It becomes bearish once price fails the base of the wedge. Look for a retest of the base of the wedge and if it fails then you have bearish confirmation. Watch our video on how to identify and trade rising wedge patterns.
What Is a Rising Wedge Pattern?
A rising wedge pattern consists of a bunch of candlesticks that form a big angular wedge that is moving up in price. It is a bullish candlestick pattern that turns bearish when price breaks down out of wedge. Rising wedge patterns form by connecting at least two to three higher highs and two to three higher lows which become trend lines.
They are bearish reversal patterns. The rising wedge pattern can sometimes be a continuation pattern as well but that’s a rare occasion. Watch our video above to learn more about rising wedges.We’ll give you some tips on how to trade rising wedges in this post! Wedges hold price waves. The waves are made when the price moves inside a narrowing range. Those waves are filled with candlesticks that give you signs.
Candlesticks such as the long legged doji candlesticks, bullish candlesticks or even dragonfly doji candlesticks give you warnings ahead of time. Rising wedges will sometimes break, and expand into larger rising wedges…we’ll get into that below.
Wedges kind of look like triangles but the pattern they form means something different. Triangles are formed by price moving sideways where as wedges move up or down with pretty significant price movement. As price begins to trade in the narrowing trading range you may see that tell you of indecision. Wait for confirmation of the break out before shorting the move down. You don’t want to get caught in thinking it’s breaking down and instead it goes up.
How Do You Trade Rising Wedge Patterns?
When rising wedge patterns complete, the price breaks out, usually in the opposite direction the wedge was pointing. Rising wedges point up so when price breaks out it breaks down.
Some rising wedges are vectored at steeper inclines then others (make sure to bookmark our watchlists page which we update daily).
This is why it’s known as a reversal pattern. It starts wide at the bottom and moves into a point at the top as price begins to trade in the narrowing range. If they are part of a continuation pattern it still has the slope up.
Instead of price breaking down though, it continues up, until a point (they always end, even if it is only briefly). As a reversal trend it slopes up with the trend and then breaks down (and signals a good entry or exit on a trade!).
Using Trend Lines To Find Rising Wedges
If you’ve been watching our candlesticks patterns videos or reading our blog posts, you’ve probably noticed by now that trend lines are pretty important. You simply need to practice drawing them to find patterns.
Being able to draw trend lines correctly is a pretty important skill (take our free courses and you’ll learn how to read the market).
Not only do they map out patterns such as rising wedge patterns but also symmetrical triangle patterns or ascending triangle patterns. Trend lines also form key support and resistance levels.
Price will break above or below these levels and then retest them. Not being able to draw these properly can result in making bad entries into a stock.We teach how to trade candlesticks on our live daily streams. Check out our trading service to learn more.
Rising Wedges Form In Insecure Markets
Rising Wedge Patterns show the emotions on the charts. In order for rising wedge patterns to form they need an upper resistance line and a lower support line. Hence…trend lines that double as support and resistance and pattern forms. Buyers and sellers show their emotions as they create large amounts of buying and selling (show on the volume portion of the chart) at support and resistance.
The upper resistance line needs at least two reaction highs to form. Ideally you’d want three. Each high should be higher than the previous high. It’s heading up.
The lower support line also needs at least two reaction lows. This forms the support level. Each low should be higher than the previous low. It’s forming higher lows.
How to Trade Rising Wedge Patterns
- How to trade rising wedge patterns:
- Watch for a rising wedge pattern to form by connecting two to three peaks and valleys (higher highs and higher lows).
- Connect the peaks and valleys via trend lines.
- Once price breaks down out of the peak of the wedge take short entry.
- Use candlestick close above peak of wedge as your stop.
Support Break Confirmation
They can be one of the more difficult Japanese candlesticks patterns to trade. You need the bearish confirmation to occur and that doesn’t happen until the support line is broken.
It can’t just be broken but needs to be broken in a convincing fashion. It’s important to wait for that confirmation before jumping in to short sell.
Once support is broken there may be a reaction rally to test the new resistance level. What once was support is now resistance. Traders test that to make sure it’s going to hold.
If that resistance level holds, they can buy put options or short sell. This pattern has higher highs and higher lows making it inherently bullish even though it has a bearish bias.
Stocks trade on supply and demand and when the final break of support happens, you know the supply is more than the demand.
How To Use A Rising Wedge Pattern Right
Rising wedge patterns indicate that a bearish downturn can be expected when the rising wedge channel begins to get too tight, or the price breaks down out of the lower half of the trend line. I look for when there is about 15-20% left of the wedge pattern left and expect a move in this zone.
There’s no way you can perfectly measure the decline so using technical analysis helps. I prefer to use Fibonacci retracements and other trend lines to find the next level of support after a rising wedge has broken.
Technical analysis basics helps to forecast price targets. Use the simple moving average formula or the VWAP trading strategy to give you buy and sell signals.
Price is always moving so using patterns along with candlesticks can help you trade a stock that is in a downtrend or uptrend, and anticipate the next move so you can place a trade and profit! Thanks for reading our rising wedge patterns post and be sure to check out the other related candlestick patterns on our blog.