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Rising Wedge Pattern

The Rising Wedge pattern is a bearish reversal pattern. This pattern forms at the end of the upward trend and causes the market to return.

The Rising Wedge is a reliable pattern you should learn to increase your profit. Join me, and I will teach you essential points about this pattern.

This pattern consists of two converging ascending trend lines. The lower ascending trend line is a supporting trend line with a high slope, and the upper trend line is a resistance trend line with a low positive slope. The bottoms are far from each other, and the tops are closer.

The price should make at least five significant pivots to form this pattern correctly. I’ll explain. To confirm the validity of the Rising Wedge pattern, the price must make at least five tops and bottoms. Specifically, it must complete at least three major tops and two major bottoms.

There is no rule saying it must be five tops and bottoms. It can be more than this number, but it should not be less than five. Remember that their number should not be too high because the validity of the pattern will decrease. If five tops and bottoms are not formed, the pattern is not complete. This means that the pattern isn’t broken, but that it never existed because it didn’t fully form.

After forming the last top, the price should return to the lower support line. At this point, we say that the fifth top creates, and the pattern is complete.

When the price forms a Wedge pattern in an upward converging trend, you can continue the two support and resistance lines until they intersect. This point is the apex of a triangle. Within this pattern, a war occurs between buyers and sellers. When the support line breaks, the bears(sellers) win the war and attack downwards with all their might. In this case, the price enters a downward trend.

You and I should be with the bears in this battle. We can only trade on this pattern in two-sided markets, such as Forex and Cryptocurrency. In one-sided markets, we can use it as a signal to exit the position.

⅔ X Rule

I want to tell you an exciting rule to recognize the pattern better and evaluate its validity. Measure from the first top at the pattern to the apex point horizontally and name it X. divide this distance (X) into three equal parts.

The two small areas (1/3X) on the left side are critical; I have shown them with a purple line; let’s call it (⅔ X area). The price should complete the pattern in this area and should not get too close to the apex of the triangle.

In the standard mode, a Wedge pattern should form in the left ⅔ X area. As the price gets closer to the apex and the fluctuations become smaller, the validity of the pattern decreases.

In an ideal situation, the last top should be at the end of the left ⅔ X area. This area is the best situation for a Wedge pattern to form, breaking the trend line in this zone increases the probability of a reverse trend.

Trade on the Rising Wedge Pattern

After a trend meets all the Rising Wedge standards, you can enter a short position and take your profit from the market when the support trend line breaks.

You cannot enter the position until the support trend line is broken. I have frequently made this mistake, but learn from my experiences and avoid this. Always wait for breakout confirmation.

You can use candlestick patterns in the lower time frame to get confirmation. Fortunately, stop loss is much less than the take-profit in this pattern. We have a high risk-to-reward ratio in this pattern.

You should place your stop loss position above the last top. For even more profit, you can use candlestick patterns and place the stop loss above the breakout candle. It depends on your risk management.

The take-profit is equal to the distance between the lowest low and the lowest high, in other words, the vertical length from top one to bottom one. See one of my trades on the chart BTCUSDT at the daily time frame.

When the price broke the lower support trendline, I entered a short position at 50578.31 USDT. I put my stop loss above the breakout candle at 60977.42 USDT to have a higher risk-to-reward ratio. My take-profit was equal to the vertical distance from top one to bottom one. I placed it at 39910.42 USDT.

You may not believe it, but after the formation of this pattern, Bitcoin dropped in price by about -50%. This was one of my most important positions. Many traders believed that Bitcoin was in an uptrend.

But I trusted in the Rising Wedge. I knew that the trend had reversed to downward. I made a profit of $4000 in this position. Long live Wedge pattern. Now you can see the potential of the Rising Wedge pattern. While its name is Rising Wedge, the results are falling.

Failed Rising Wedge

When the price reaches the support line after forming the third top, the Rising Wedge pattern is confirmed. If the price rises again after reaching the support trend line and rises to the resistance trend line area, the third bottom forms. That’s not a good sign. In this case, you should be suspicious because the pattern has lost a bit of its credibility.

It is possible that the Rising Wedge pattern might fail, and the price could continue its upward trend. What should we do in this situation? Well, we can still get profit from the market. Stick around and find out how.

If the price increases after the formation of the third bottom and breaks the resistance trend line, the pattern has failed and the price will rise with a lot of momentum because buyers will enthusiastically enter the market.

In this case, you have to wait for the breakout candle to close above the trendline resistance and place the stop loss below the last bottom.

The take-profit size is the same as before. By this, I mean the distance from the lowest top to the lowest bottom is your take-profit size. This is how you can get a successful position from a failed pattern.

Falling Wedge Pattern

The Falling Wedge pattern is a bullish reversal pattern. This pattern forms at the end of a downward trend and causes the price to return to an upward trend.

This pattern is solid and valid. Traders see this pattern as a treasure trove of gold. So it will be excellent for you to learn it well and make huge profits in the market.

This pattern consists of two converging descending trend lines. A support line at the bottom of the price keeps the price up, and a resistance line above the price does not allow the price to rise. The slope of the resistance trend line is higher than the slope of the support trend line. These two lines converge on each other and become closer over time.

To confirm the formation of the Falling Wedge pattern, we must have enough significant pivots. For a Falling Wedge pattern to be confirmed, we need at least three major bottoms and two major tops in a downward converging trend. Like the Rising Wedge, the price can have more tops and bottoms than this, but if the number goes up too much, the validity of the pattern will be compromised.

After forming the bottom three, if the price breaks the upper resistance line, we can enter a long position in the market because a Falling Wedge has been formed.

They will meet at one point when we continue the two converging lines of support and resistance. This point creates the apex of a triangle. Inside this pattern, there is a conflict between buyers and sellers, and the winner of this war is usually the buyers because this pattern is a reversal pattern.

When the upper resistance line breaks, the price increases with all its strength, so we should be with the bulls. This pattern is very effective in one-sided markets, and stock market traders are always interested in it. An excellent opportunity to enter a long position, but how and where should we enter? Keep reading!

⅔ X Rule

Here we have to repeat the same procedure as in the previous pattern. Measure the horizontal distance from the first bottom to the apex point and call it X. Divide the X into three equal parts. Do you see these three areas I have shown with ⅓ X lines? The part near the apex is risky, and the price shouldn’t be near it.

The left side parts ( two ⅓ X at the left) are the safe zone, and the price should complete the pattern in this zone for better performance. This area covers 2/3 of the distance; I have shown it with a purple line. The price should fluctuate on the left ⅔ X and not close to the apex.

In this case, the probability of return increases, and we have a standard pattern. If the price fluctuations continue and reach the apex of the triangle, the pattern’s validity will decrease, and the probability of failure will increase.

Trade on the Falling Wedge Pattern

The falling wedge pattern consists of two support and resistance trend lines. If the upper resistance line breaks, a reversal signal will be confirmed, and the price will change the trend, but don’t act until you are sure of this breakout.

After breaking out the resistance line, you can enter a long position. You should put the stop loss under the last bottom, and the take-profit is equal to the distance between the highest top and highest low inside the pattern.

Trade with low risk and high profit. What can be better than this? Look at my position on the GBPUSD chart at the four-hour time frame to see how much I profited from this position.

When the price broke the resistance line, I waited for the breakout candle to close above the trend line. Then I entered the position at 1.19742 USD. I placed my stop loss below the breakout candle at 1.18661 USD, and my take-profit was equal to the distance between the highest top to the highest bottom. So I put the take-profit trigger at 1.21511 USD.

I made an excellent profit of $3,800 dollars from this pattern. The exciting part is that my stop loss was only $2,100 dollars. You can make money; you just have to practice and be patient.

Failed Falling Wedge

The Falling Wedge pattern also fails sometimes. Remember that to confirm the formation of a Falling Wedge, the third bottom must form, and the price should reach the resistance area. After forming the third top, there is a possibility that the pattern will fail.

Of course, the pattern can still work correctly, and we can benefit from it, but we have to be more cautious. After forming the third top, the Falling Wedge pattern fails if the price breaks the support trend line.

After this failure, the price enters a downward trend with a lot of momentum. You can enter a short position with the help of a candlestick pattern.

Enter the short position after the breakout candle and place your stop loss above the last top. The take-profit is equal to the distance between the highest top and the highest bottom in the Falling Wedge. Since the price momentum is high after the failure, you can profit even more.

Elliot Waves Theory

Elliott waves are a fascinating topic in the world of technical analysis science. I like Elliott’s theory very much because it is exciting, and I have made huge profits.

Wedge pattern has a special place in Elliot waves, and we can have a more robust analysis by combining these two issues. In this part, I have effortlessly combined these two subjects.

Rising and Falling Wedge are also widely used in Elliot waves. This type of price behavior is called the diagonal pattern. Rising and Falling Wedge patterns can be in the form of an ending diagonal and a leading diagonal. For example, the whole Wave 5 can be a Rising Wedge pattern, and the entire wave C can be a Falling Wedge pattern.

In the fifth wave, which is an ending diagonal wave. If we look closer at the sub-waves, we can see that wave one is longer than all the waves, and then the waves get smaller in order because the price converges in a trend, and each wave is smaller than the previous one. The same situation exists for the sub-wave inside the C major wave, which is a type of Falling Wedge pattern.

In the diagonal ending and leading diagonal waves, the price moves convergently, and the size of the price waves or the length between the tops and bottoms decreases after every reaction to the support and resistance levels. The theory of Elliot waves is much broader, and I have to discuss it in detail in the following articles.

Conclusion

In this article, you learned about Rising and Falling Wedge patterns. Now you can implement your ideas on the chart. Rest assured, if you practice this pattern enough, you will be profitable. You just need to have proper capital management to see the miracle of this pattern in your life. Thank you for taking the time to read this article.