What Is A Rising Wedge Chart Pattern?
In technical analysis, a rising wedge chart pattern, also known as a "bearish wedge", is a chart pattern formation that forms when two rising converging lines connect the higher swing highs and the higher swing lows in the prices of a financial market together.
The rising wedge chart pattern is a bearish signal and it indicates that the price of a market will decline and go lower once the pattern is successfully completed.
A rising wedge is most commonly used as a price reversal pattern meaning it can signal a change in the trend direction from bullish to bearish.
The rising wedge is also found as a continuation pattern meaning it forms in the middle of a trend and signals a continuation in the direction of the trend.
Rising Wedge Pattern Components
In order to identify a rising wedge chart pattern, there will need to be two components visible on the price chart.
The 2 components of a rising wedge chart pattern are:
- A rising support level:This is the lower rising support level that connects the higher swing lows or the troughs of the prices together on a chart.
- A rising but tightening resistance level: This is the upper rising but tightening resistance level that connects the higher swing highs or the peaks of the prices together on a chart.
Drawing a rising wedge pattern involves combining these components of the rising but tightening resistance level and the rising support line together.
Rising Wedge Chart Pattern Examples
Below are visual examples of the rising wedge chart pattern.
Example Of A Rising Wedge Chart Pattern In Stocks
In the above price chart of Baidu stock, a rising wedge forms on the daily price chart.
It leads to a decrease in the price once the pattern is complete.
Example Of A Rising Wedge Chart Pattern In Forex
In the above price chart of EUR/USD, a rising wedge pattern formed during a bearish downtrend.
The price of the currency breaks down from the pattern and it leads to very steep and fast price declines over the following weeks.
Example Of A Rising Wedge As A Continuation Pattern
In the above price chart of the S&P500 index, a rising wedge forms during a bearish downtrend.
Once the price of the S&P500 breaks the support level of the rising wedge, it signals a continuation of the previously established bearish price trend.
Example Of A Rising Wedge As A Reversal Pattern
In the price chart of Facebook stock above, a rising wedge forms as a reversal pattern. The price of Facebook was originally in a bullish trend. As the price went higher, a rising wedge pattern formed.
Once the price breaks down below the rising support level of the trend, it signaled a reversal in the prices from bullish to bearish.
Rising Wedge Pattern Timeframes
A rising wedge chart pattern can form on any timeframe without being restricted to just one.
Popular timeframes where rising wedge patterns form include:
- 1-minute price charts: Scalpers and high-frequency traders will use the 1-minute price chart to find rising wedges.
- 5-minute price charts: Intraday traders will use the 5-minute price charts to find rising wedge patterns.
- Hourly price charts: Day traders will use the hourly price charts to find rising wedge patterns.
- Daily price charts: Swing traders will use the daily price chart to find rising wedge patterns.
- Weekly price charts: Longer-term traders will search for rising wedges on the weekly price charts.
These are the most popular timeframes used to trade rising wedge chart patterns. However, traders can use any timeframe they want to try find these patterns.
How To Find Rising Wedge Patterns
The methods for finding rising wedge chart patterns are:
- Browse all the price charts manually: A trader can manually browse through the price charts of the various markets and find the rising wedge patterns forming manually.
- Use a rising wedge chart pattern scanner: A trader can use a rising wedge chart pattern scanner to automatically scan the markets for these patterns.
- Read top trader's tweets: Follow top traders and technical analysts on Twitter can help traders find these rising wedge patterns as they are forming.
Rising Wedge Pattern Benefits
The benefits of the rising wedge chart pattern are:
- It can help find large bearish moves: A rising wedge pattern can signal a large bearish downtrend once the pattern completes successfully. The pattern can help short traders catch large bearish price moves.
- It can provide logic to the price action: Spotting the rising wedge pattern can help provide a trader with logic and understanding of the price action in the market where the pattern forms.
- It offers a high reward to risk ratio on trades: A rising wedge can offer a very high reward to risk ratio. Traders can potentially risk $1 to make $3+ using this pattern.
Rising Wedge Pattern Limitations
The limitations of the rising wedge chart pattern are:
- It can create many false signals: A rising wedge can create many false breakdown signals before the actual breakdown occurs. This can cause a trader to get stuck trading choppy and volatile price action before the real bearish move occurs.
- The pattern is not always obvious on a price chart: A rising wedge pattern may not be easy to identify, especially during more volatile periods in the market.
Rising Wedge Formation Duration
The length of time a rising wedge takes to form will depend on the timeframe of the price chart used.
Popular examples of how long a rising wedge takes to form include:
- 1-minute price charts: A rising wedge will typically take between 30 minutes and 90 minutes to form on a 1-minute price chart.
- Hourly price charts: A rising wedge will typically take between 30 hours and 90 hours to form on an hourly price chart.
- Daily price charts: A rising wedge will typically take between 1 and 3 months to form on a daily price chart.
- Weekly price charts: A rising wedge will typically take between 30 weeks to over a year to form on a weekly price chart.
Frequently Asked Questions About The Rising Wedge Pattern
Below are frequently asked questions about the rising wedge chart pattern.
Is A Rising Wedge Pattern A Bullish Or Bearish Signal?
A rising wedge chart pattern is a bearish signal that indicates that the price of a market may decline and move lower once the pattern is completed.
Where Is The Short Entry Point Of A Rising Wedge Pattern?
The short entry point of a rising wedge chart pattern is when the price breaks down below the rising support level. Typically, a trader will like to see an increase in selling pressure and selling volume at the breakdown point.
What Does A Rising Wedge Tell You?
A rising wedge indicates that the price of a market is potentially reaching an overbought and exhausted state and that there may be a bearish price reversal imminent once the pattern is completed and the price breaks the rising support level of the pattern.
What Is The Opposite Of A Rising Wedge?
The opposite of a rising wedge pattern is the falling wedge pattern. The falling wedge pattern is a bullish signal that the price may rise higher.
Can A Rising Wedge Be Used With Another Technical Indicator Or Chart Pattern?
A rising wedge can be used in conjunction with other technical indicators and chart patterns to improve the probability and accuracy of a trade.
A popular pattern used in conjunction with the rising wedge is the horizontal resistance level.
If a rising wedge trades into a key resistance level, this can increase the probability of a price reversing and declining.
A popular technical indicator used in conjunction with the rising wedge pattern is the relative strength indicator (r.s.i.).
When the r.s.i. measures and overbought reading during the formation of a rising wedge, this can increase the probabilities that the prices of a market may reverse from bullish to bearish and decline lower.