Ascending Broadening Wedge Patterns: Trading Strategies and Examples
If you have no clue about how to trade the broadening wedge chart pattern, don’t worry – you’re not alone. Prices might overshoot or undershoot typical targets during high volatility periods or significant market events like earnings season. Similarly, if a stock breaks down and out of a rising wedge during a broader market sell-off, it may reach its target faster than during calm market conditions. Whether you’re a day trader, swing trader, or long-term investor, understanding how to recognize and trade the rising wedge pattern can open up new opportunities. A breakout occurs when the price moves decisively above the upper trendline (bullish) or below the lower trendline (bearish), often accompanied by increased volume.
Broadening Wedge Pattern: What Is It and How to Trade It
These trading strategies provide a comprehensive approach for traders to efficiently navigate the broadening wedge pattern in real-time markets. By contrast, contracting wedge patterns called descending broadening wedges have decreasing volatility over time suggesting trend struggles are ahead. Descending wedges are extremely similar to symmetrical triangles except triangles have clear resistance and support trend lines versus angled sides. The rising wedge pattern is characterized by a chart pattern which forms when the market makes higher highs and higher lows with a contracting range. When this pattern is found in an uptrend, it is considered a reversal pattern, as the rising broadening wedge pattern contraction of the range indicates that the uptrend is losing strength. The falling wedge pattern is characterized by a chart pattern which forms when the market makes lower lows and lower highs with a contracting range.
Trading Rising Wedges: Non-busted Buy, Busted Sale
- The pattern is confirmed when the price breaks below the lower support trend line, often with declining volume.
- Pullbacks into the pattern after breakout do occur regularly so place your stops accordingly.
- Traders and investors generally use additional technical indicators for validation.
- Different asset classes exhibit unique behaviors, and the pattern’s reliability can vary accordingly.
Recognizing and trading a rising wedge pattern involves identifying converging, upward-sloping trend lines during an uptrend (for reversal) or downtrend (for continuation). The pattern is confirmed when the price breaks below the lower support trend line, often with declining volume. The upper trendline acts as the resistance line and the lower trendline act as the support line.
- The rising wedge pattern is identified by its ascending support and resistance lines that converge, creating a narrowing wedge shape.
- You buy the upward breakout fromthe broadening bottom, hold for a few years, and sell when a double top appears and breaks out downward.
- After a rising wedge pattern, it typically leads to a bearish reversal if it forms after an uptrend, and leads to a continuation if it forms during a downtrend.
- This is why you should only trade the rising wedge pattern on a confirmed breakout, and also exercise good risk management.
- And, what helps them in identifying the exact time to market are various chart patterns.
How do you trade a rising wedge?
Combine chart patterns with supporting indicators – such as RSI or MACD – to improve accuracy. Traders use rising wedge patterns as one key clue to anticipate potential market reversals. Today, the rising wedge pattern is recognised as a valuable tool in market analysis, helping traders predict potential reversals or trend continuations. At the same time, when you get a falling wedge, you should enter the market whenever the price breaks the upper level of the formation. Rising and falling wedges are a technical chart pattern used to predict trend continuations and trend reversals. In many cases, when the market is trending, a wedge will develop on the chart.
For example, buying a busted rising wedge and selling a busted broadening top made 76% from the winners, lost 12% on the losers for a net gain of 9%. The net gain placed the performance of this setup at 98, where a rank of 1 is best. Expectancy was a gain of $3.05 per share, ranking 51st among the four tables. The safest way to trade chart patterns is to wait for price action to break through one of the trend lines and make a trade accordingly. The broadening wedge is a bilateral chart pattern that you can use to spot potential breakouts (if the market is trending) and short-term trend reversals.
