What Is a Rising Wedge Pattern & How to Trade it?

The rising wedge is a common price chart pattern that can be identified by converging trend lines and a series of higher highs accompanied by lower lows. As the rising wedge progresses, the price range narrows. 

Generally, the rising wedge is analyzed as a bearish chart pattern that signals a reversal in the market (the asset going from an uptrend into a downtrend).

Let’s take a look at an example of what a rising wedge candlestick pattern looks like. Keep in mind that in addition to the price action, a textbook rising wedge is also characterized by declining trading volume. 

In a textbook rising wedge pattern, the price breaks below the lower trend line when the two trend lines are close to converging. 

How to identify a rising wedge candlestick pattern?

When trying to spot a rising wedge pattern on a candlestick chart, you should look for at least two, ideally three reaction highs, which guide the upper trend line. Each reaction high should be higher than the previous one, resulting in a rising trend line.

The reverse applies for the reaction lows. There should be at least two, ideally three, reaction lows guiding the lower trend line. Each subsequent reaction low should be higher than the previous one. 

While both trend lines in a rising wedge pattern are moving upwards, the lower trend line is steeper than the upper trend line. Therefore, the two trend lines are converging as the price action within a rising wedge becomes narrower. In a textbook rising wedge, the bearish breakout below the lower trend line occurs when the two trend lines are close to converging. 

Also, you should be looking for declining trading volume while the rising wedge pattern is forming. Declining trading volume strengthens the bearish signal provided by the rising wedge pattern, and makes a bearish breakout to the downside more likely. 

How to trade a rising wedge pattern?

Typically, traders will look for a convincing break below the lower trend line of a rising wedge, and enter a short position on the asset. 

Setting a stop loss

Since wedge patterns can vary significantly, there’s no one-size-fits-all method for placing a stop loss when you’re trading based on the rising wedge pattern. One approach could be to set the stop loss slightly above the last reaction high. If the price makes a new high after breaking below the lower trend line of the rising wedge, the rising wedge is generally considered invalidated.

For example, in the image above, we’re entering the trade with the assumption that the lower trend line will act as resistance and reject the retest after the price drops below the rising wedge. Here, we would enter a short position and place a stop loss (SL) slightly higher than the previous high made within the wedge pattern. 

Taking profits

For your take profit, consider using the swing lows made within the rising wedge. These areas could potentially provide support for the price. Here’s an example of this idea with the dotted lines representing potential support levels that could provide a good opportunity to take profits on your short position.

Rising wedge FAQs 

Now, let’s take a quick look at some of the most common questions traders have regarding the rising wedge candlestick pattern.

Is the rising wedge pattern bullish or bearish?

The rising wedge pattern is typically seen as a bullish formation, signaling a price movement downwards.

Does the rising wedge pattern signal a trend continuation or reversal?

The rising wedge is typically analyzed as a bearish reversal pattern, signaling that an asset that’s trending upwards is about to enter a downtrend. However, if a rising wedge occurs within a clear downtrend, it can also be viewed as a trend continuation signal. 

Does volume matter in a rising wedge?

Yes, volume is an important factor of analyzing a rising wedge candlestick pattern. If the trading volume is declining as the rising wedge pattern is forming, that is considered a stronger signal that the pattern will resolve with a breakout to the downside.

How to tell when there’s a breakout from a rising wedge?

A bearish confirmation of a rising wedge pattern happens when the price convincingly falls below the lower trend line. If you want to be more careful, you can wait for the price to fall to the previous swing low after it breaks beneath the lower trend line of the rising wedge. 

The bottom line

The rising wedge is a frequently analyzed candlestick chart pattern. It is typically viewed as a bearish signal, and is characterized by converging trend lines which follow along a series of higher lows and higher highs. As the price range narrows, the likelihood of a breakout to the downside increases.

Let’s summarize some of the most important takeaways when it comes to analyzing and trading a rising wedge candlestick pattern. 

• To identify a rising wedge, there should ideally be three or more reaction highs, with each higher than the previous. The same applies to the reaction highs, which are followed by the upper trend line.
• If a candle closes above the previous reaction high after there is a break of the wedge to the downside, the rising wedge pattern is generally considered to be invalidated. 
• Typically, the rising wedge pattern is analyzed as a reversal signal. However, if the asset is in a clear downtrend, a rising wedge can also signal a continuation of a bearish trend. In any case, the rising wedge pattern is a bearish pattern.
• Look for declining trading volume as the rising wedge forms. If the volume is declining, that is a stronger signal for a break to the downside. 

If you want to learn more about commonly analyzed chart patterns, make sure to check out our candlestick pattern cheat sheet.