A rising wedge is a contracting price pattern that most often signals a bearish move and is used to find short-selling opportunities.
How to Identify a Rising Wedge
Price forms higher highs and higher lows.
Trendlines converge, narrowing the price range.
Often precedes:
A downward reversal in an uptrend.
A continuation of decline in a downtrend.
Types of Rising Wedge
In an uptrend: acts as a reversal pattern, warning of a potential price drop.
In a downtrend: acts as a continuation pattern, confirming ongoing bearish momentum.
How to Trade a Rising Wedge
Method 1: Aggressive
Entry: after the price breaks below the wedge’s lower boundary (preferably wait for a candle close).
Stop-loss: above the wedge’s upper boundary.
Take-profit: measure the height of the wedge’s base and project it downward from the breakout.
Method 2: Conservative
Wait for a breakout and retest of the broken support line (now resistance).
Entry: after the retest confirms the new resistance.
Stop-loss: above the new resistance zone.
Take-profit: same as Method 1 (wedge height).
Key Features
The longer the wedge forms, the stronger the breakout is likely to be.
Volume: usually declines during formation and spikes sharply at breakout.
Works well when combined with RSI (divergence signals) or MACD confirmation.
Conclusion:
The rising wedge is a reliable bearish setup for identifying trend reversals or continuation points. Combining it with volume analysis and other indicators helps increase trade accuracy.