How to Trade the Rising & Falling Wedge Patterns?

This presentation discusses technical analysis, other approaches, including fundamental analysis, may offer very different views. The examples provided are for illustrative purposes only and are not intended to be reflective of the results you can expect to achieve. This article is for informational and educational use only and is not a recommendation or endorsement of any particular investment or investment strategy. https://www.bigshotrading.info/ Investment information provided in this content is general in nature, strictly for illustrative purposes, and may not be appropriate for all investors. Investing involves risk regardless of the strategy selected and past performance does not indicate or guarantee future results. Trading leveraged products such as Forex and Cryptos may not be suitable for all investors as they carry a degree of risk to your capital.

• The reason is that the market is prone to false breakouts, which means that it soon reverts and turns to the upside.
• A rising wedge can be both a continuation and reversal pattern, although the former is more common and more efficient as it follows the…
• Before the breakout, 4 touches to the wedge’s upper and lower borders are the minimum for a valid pattern, more touches are acceptable.
• We realize that everyone was once a new trader and needs help along the way on their trading journey and that’s what we’re here for.
• Or in the case of the example below, the inverse head and shoulders.
• This is because every wedge is unique and will, therefore, be marked by different highs and lows than that of the last pattern.

In the image below we have provided an example of this very setup. The market first breaks down through the lower line, and continues down a bit before it reverses up again. Then as we see that the breakout level remains intact, we decide to take the trade.

Time Frame Matters

Rising wedge patterns form by connecting at least two to three higher highs and two to three higher lows which become trend lines. The rising wedge pattern can sometimes be a continuation pattern as well but that’s a rare occasion. Therefore, rising wedge patterns indicate the more likely potential of falling prices after a breakout of the lower trend line. Traders can make bearish trades after the breakout by selling the security short or using derivatives such as futures or options, depending on the security being charted. These trades would seek to profit on the potential that prices will fall. The falling wedge pattern is a continuation pattern formed when price bounces between two downward sloping, converging trendlines.

Wyckoff Accumulation & Distribution is a trading strategy that was developed by Richard Wyckoff in the early 1900s. It is based on the premise that markets move in cycles and that traders may recognize and use these cycles. In accumulation phase Wyckoff strategy involves identifying a Trading Range where buyers are accumulating shares of a stock before it…

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Below we have broken down the definition of the pattern, and the various conditions you need to take into consideration. The blue arrows next to the wedges show the size of each edge and the potential of each position. The green areas on the chart show the move we catch with our positions.

Thus, you have a series of higher highs in an ascending wedge, but those highs are waning. Leveraged trading in foreign currency or off-exchange products on margin carries significant risk and may not be suitable for all investors. We advise you to carefully consider whether trading is appropriate for you based on your personal circumstances. We recommend that you seek independent advice and ensure you fully understand the risks involved before trading.

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Below are some of the more important points to keep in mind as you begin trading these patterns on your own. Regardless of which stop loss strategy you choose, just remember to always place your stop at a level that would invalidate the setup if hit. Put simply, waiting for a retest of the broken level How to Trade Rising Wedge Pattern will give you a more favorable risk to reward ratio. In the illustration above, we have a consolidation period where the bears are clearly in control. We know this to be true because the market is making lower highs and lower lows. The illustration below shows the characteristics of the rising wedge.

Recognizing and trading a rising wedge pattern involves identifying converging, upward-sloping trendlines during an uptrend (for reversal) or downtrend (for continuation). The pattern is confirmed when the price breaks below the lower support trendline, often accompanied by declining volume. Traders and investors generally use additional technical indicators for validation. When a rising wedge pattern appears on a currency pair’s exchange rate chart, it has two upward-sloping trend lines. The upper of the two converging trendlines represents resistance, while the lower trendline represents support. A rising wedge pattern can be both a reversal and a continuation pattern depending on which of its two trendlines break first.