What is Rising Wedge Chart Pattern?
Rising Wedge chart pattern, formed by price action, which is contained with in a converging and ascending trend lines. This is created when there is a minor buying in a down trend.
They are the pressure areas in a stock chart where some traders are optimistic and wants to buy. Some traders who are short wants to book some profits. Where as most traders are pessimistic about the market and keep selling and shorting on every rise. In the beginning of the pattern there is more bullish activity. As the price rises further there is more bearish activity. This results in higher high swing highs and higher high swing lows with diminishing range. Both the support and resistance lines are sloping upwards and converging.
It is a bearish continuation chart pattern. It is so named because the pattern is in the form of a wedge pointing up with the price appearing to rise, hence the name Rising Wedge Chart Pattern.
Trend is your friend. Dance with the friend. Tune to the trend.
This pattern is formed because of tug of war between the two great forces which move the price up and down, that is demand and supply.
These are pressure areas in a down trend where bulls are stronger than bears in the beginning, but become weaker than bears at the end of the pattern. These are target areas where some traders buy at support or bearish traders book profit at a target, while most traders are bearish and selling.
As the target area is approached there is increased buying. As the demand increases the price rallies up. As the price rises substantially it becomes an opportunity for the bears to sell the stock at higher level This creates a swing top and the price falls down.
As the price falls down those who wanted to buy early but failed to do so, think that now is the opportunity to buy their shares. This increases the demand and the price goes up creating a swing bottom.
This drama continues to create higher high swing highs and higher high swing lows which appear to be bullish. This is an apparent but minor trend reversal. But the strong bearish under current is expressed in the fact that each subsequent range diminishes in size indicating decrease in the momentum of price rise.
These contracting ranges (diminishing ranges) with reduced volume gives us the clue that the apparent up trend is loosing steam. So it is not a classical up trend. But a corrective rally in a downtrend. So be prepared for the downward break out in the direction of the previous trend.
If subsequent higher high swing highs are joined and extended we get up sloping trend line which forms the upper border of the wedge. Like wise if subsequent higher high swing lows are joined and extended we get up sloping trend line which forms the lower border of the wedge.
These two trend lines if extended join on right side. This completes the formation of Rising Wedge.
The slope of the upper resistance trend line is less steeper than the slope of the lower support trend line. This also indicates that the bullish force is less stronger than underlying bearish force.
After all the buying is exhausted the bearish activity becomes apparent. When the last range becomes smaller than all the ranges, the price breaks out of the rising wedge pattern towards the down side. Thus the down trend resumes and continues.
Study the charts given below.
This chart shows a Rising Wedge Chart Pattern.
Pattern trading is one of the strategies of making money in stock trading. Among the chart patterns rising wedge formation gives us the opportunity to enter or re-enter a bearish run.
Rising Wedge Chart Pattern Formation is a bearish continuation pattern and so it appears in a down trend. In a bearish market, when the price reaches a relatively minor support area or a minor target area, there is going to be increased buying which will later be completely absorbed by the selling force.
When there is increased demand the price rises forming higher high swing lows and higher high swing highs. Although this pattern appears to be bullish, the contracting ranges gives a clue that the momentum of the rise is reducing.
The steep lower trend line which forms the lower border of this rising wedge formation and the not so steep upper trend line which forms the upper border of this formation clearly tells that the resistance created by sellers is stronger than the support created by buyers.
One more clue that the market is only corrective rally and not bullish, is given by volume. When ever the price is rising the volume drops and when ever the price is falling there is increase in volume of shares traded.
After analyzing this pattern get ready to go short below the low of the candlestick which closes below the lower up sloping trend line. Protect the trade by placing a stop loss buy order above the high of the previous swing high. If you want to be aggressive you may place the stop loss buy order above the high of the candle which closes above the lower up sloping trend line.
There are many more chart pattern formation used in pattern trading. Some of them are listed below. You may click on the name of each chart pattern listed below to learn and understand more about them.
Continuation Chart Patterns