![]() The rising wedge can also occur within the context of a down trending market. ![]() When the rising wedge appears in the direction of the uptrend and after a prolonged price move higher, the most likely implication is for a reversal of the current trend. ![]() The rising wedge is often seen at the end of a bullish price move. As such a rising wedge structure is considered a bearish wedge pattern in terms of its price potential. We expect that the price will break this lower trendline, which will lead to a bearish price move. ![]() The most important level to watch for within the rising wedge pattern is the lower support line. Both lines are clearly pointing upward and are converging towards each other. Notice the upper line of the rising wedge pattern which represents the diagonal resistance level for the price action, and how the lower line of the rising wedge pattern represents the diagonal support level for the price action. The rising wedge pattern can be seen as two contracting trendlines sloping upward and wherein the majority of the price action is contained within these trendlines. Below you will see an illustration of the rising wedge pattern. Let’s now take a closer look at the rising wedge pattern. And similarly the price action following the break of the upper line within a falling wedge will often lead to a sharp reversal to the upside. The price action following the break of the lower line within a rising wedge will often lead to a sharp price reversal to the downside. When the wedge pattern occurs in the direction of the trend and within the late stages of the trend is considered a reversal pattern. Elliott wave traders will recognize the technical wedge formation as an ending diagonal. That is to say that a rising wedge pattern can form near the terminal point of a bullish trend, while a falling wedge pattern can form near the terminal point of a bearish trend. Wedge patterns often occur at the terminal point of a trend. As such, these formations are sometimes referred to as a triangle wedge. Often the wedge pattern resembles a triangle formation that has been tilted either up or down. We will detail all of these different types of wedge structures as we move through this lesson, however, for now it’s important to understand that a wedge pattern is a prolonged consolidation pattern that can form in both up trending and down trending markets. When this occurs the wedge structure can be further classified as either an ascending wedge, or a descending wedge. In rare cases, a wedge pattern can form as a broadening or expanding variation. Most wedge patterns form as a contracting variety, and the contracting variety can be classified as a rising wedge or a falling wedge. Volume will also contract during the formation of a wedge pattern. Wedge patterns are considered consolidation phases wherein there is a contraction within the price movement. Click Here To Download Wedge Chart PatternĪ wedge pattern is a corrective price structure that often precedes a new trend leg. Once these activities stop, the price may break out in either direction.Download the short printable PDF version summarizing the key points of this lesson…. Then value investors begin to sell, believing the price has risen too much, which spurs the original large investor to resume buying again. The theory goes that after initial buying occurs, other market participants react to the rising price and jump on the bandwagon to participate. This pattern may form when large investors spread their buying over a period of time. The Broadening Wedge Ascending pattern forms when the price of a security progressively makes higher highs (1, 3) and higher lows (2, 4), following two widening trend lines. To limit potential loss when the price suddenly goes in the wrong direction, consider placing a stop order to sell at or below the breakout price. Pattern height is the difference between the breakout price (the highest high within the pattern) and the highest low. To identify an exit, compute the target price for this formation by adding the height of the pattern to the upward breakout level. Consider buying a security or a call option at the upward breakout price/entry point. Once the price breaks out from the top pattern boundary, day traders and swing traders should trade with an UP trend.
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