What are Falling and Rising Wedge Patterns?What Is the Wedge Pattern and Its Common Characteristics?
1. Wedge patterns have converging trend lines that come to an apex with a distinguishable upside or downside slant.
a. Wedge with an upside slant is called a rising wedge
b. Wedge with downside slant is called falling wedge
2. It has declining volumes as the pattern progresses
3. It breaks out from one of the trend lines
Why We Should Pay Attention to Wedge Patterns?
Some studies suggest that a wedge pattern will breakout towards a reversal rather than a continuation more often than two-thirds of the time. Therefore as the rule of thumb, people generally treat a falling wedge as a bullish pattern and a rising wedge as a bearish pattern , especially a falling wedge would be a more reliable reversal indicator than a rising wedge
Since we know a wedge pattern has a higher probability to reverse and due to the fact that the price of wedge pattern converges to a smaller area, we can trade the reversal set up with a relatively close stop loss to its entry price, which provides us with a good trading opportunity with a decent Risk:Reward ratio.
Examples of a Bullish Rising Wedge and Bearish Falling Wedge
Sadly, there is nothing that works 100% in trading. Not every rising or falling wedge will reverse as one might expect. Every trader must properly manage their risk by setting stop losses and not just trading based on price patterns. Below are two examples.
Bullish Rising Wedge ( ETHUSDT during 15/NOV/20 - 28/DEC/20)
In the early stages of the epic 20-21 bull market, if traders blindly treat the rising wedge as a bearish signal and trade accordingly, they would pay a heavy price.
Bearish Falling Wedge ( LTCUSD during 14/AUG/18 - 14/NOV/18)
On the contrary, in the late stage of the 2018 bear market, any trader who blindly trades the falling wedge to bet on a reversal would also learn a hard lesson.
Comment down your thoughts on Wedge Patterns in the comment section.
Disclaimer:
This is just an educational post. Never trade just any pattern. And please do your research before making any trades.
Happy Trading!
