The Rising Wedge PatternA rising wedge is a bearish pattern when it appears at the top of a mature uptrend. It signifies that a potential top might be in the offing. The duration (short/medium/long term) of the top depends upon the timeframe on which it appears.
Preconditions
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> A strong mature (multi-day/week)trend in the background
> Wave HH1 to be extremely smaller than H
> HH2 should be smaller than HH1
> HH-HL structure results into a rising wedge or arrowhead
> It should appear at the potential top of a rally
> Wave LL has to be snappier/abrupt/faster than wave HL & L
Volume characteristics
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> The volume in HH1 is generally less than volume in wave H
> Volume in HH2 is less than volume in HH1
> Volume in wave LL should be higher than volume in wave HL and L
Confirmation
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> Wave LL breaks the low of wave HL
Psychology
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> Weak character of waves HH1 & HH2 with shortening of length and lesser volume means buyers are not interested at these levels
> Breakout buyers trapped above H and HH1
> Sharp wave LL with increasing volume suggest that sellers are taking over and a potential medium to long term top may be in place
Trading
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> Book profits full/partial, in any long position, at the break of HL
> Risk takers short at the break of HL but risk in may be large as stop loss (above HH2) could be wide
> Other may wait for a pullback on the upside (after break of HL); price often reverts back to average prices where short position can be taken
> Always try to minimize risk, either by reducing position size or otherwise
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