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What's a rising wedge?
The rising wedge chart pattern is a negative chart pattern made up of two trend lines that meet. The first trend line in the pattern connects the recent lower and higher highs, and the second trend line connects the recent lows.
The result is a shape that looks like an upside-down triangle. A pattern that goes in the opposite direction of a rising wedge is called a falling wedge.
The rising wedge pattern could be thought of as a bearish wedge because the low is higher than the high and the lower trend line is steeper.
Even though the falling wedges all look the same, the only things that make them different are the angle at which the triangle is tilted and what the pattern suggests will happen.
The rising wedge (ascending) pattern is a negative chart pattern because it predicts that prices will go down or that a downtrend will start, and trading volume goes down as the wedge goes on.
Even if the wedge is still following the price action and moving higher, the fact that trading volume is going down may mean that sellers are getting ready for a negative breakout by gathering their strength.
Causes and Signs of a Rising Wedge
Most of the time, the rising wedge pattern is seen after a long trend. Because of this, it can be very helpful when trading cryptocurrencies.
For example, if a crypto trend has moved too quickly and too far, the wedge pattern could mean that the trend is about to change.
Trends are caused by a difference between the number of buyers and sellers. At each price, buyers and sellers are making deals. If there are more buyers than sellers, the price must go up to attract more sellers.
If the price increase doesn't bring in more sellers, prices will continue to change a lot. This quick change creates strong uptrends that start to attract other buyers who don't want to miss out on a strong trend.
After this strong trend has built up and big crypto whales lose interest in buying, the price will start to go down, which will bring in buyers who don't want to miss out (FOMO). After each new high, there is a correction, which brings in more buyers.
At this time, the rising wedge pattern has formed, and a big market correction is coming soon.
What does it mean when a wedge is going up?
The ascending wedge, which is also called the rising wedge, is a reversal pattern that shows a price drop. So, you can expect the market to change its direction after the pattern is done.
As the rising wedge pattern keeps going up, a bearish reversal is about to happen, which will turn the uptrend into a downtrend.
Because a wedge pattern and a triangle pattern look alike, cryptocurrency traders may be confused by this. But there are differences between the two that help the trader figure out the future direction of the market with more accuracy.
The trend lines of resistance and support meet in the middle of both wedge and triangle formations, making them look like triangles.
The main difference is that wedges grow in the same direction as the larger trend, either up or down, while triangles grow sideways or flat. In the previous picture of an ascending wedge, the trend lines of resistance and support meet as they go up.
In the same way, as the falling wedge goes down, the resistance and support trend lines come together. Still, the triangle pattern has trend lines that meet at points of resistance and support.
The resistance trend line, on the other hand, is either flat or going down, while the support trend line is either going up or staying flat. So, wedges are reversal patterns, and triangles are patterns that keep going.
Getting More Proof Of A Rising Wedge Pattern
A valid pattern for an ascending wedge looks like this:
Waves that are rough and overlap
More highs and lows happened.
A line of resistance that goes up
A line of support that goes up
When extrapolated, trend lines of resistance and support that meet and cross
If you see all of these parts in a pattern, it's probably an ascending wedge pattern.
You might also see a few other things, but these are just ideas and not guarantees.
So, to sum up
Rising wedges are liked by professional technical traders because they have a low risk and a high reward. There are a lot of patterns that look like rising wedges but aren't what they seem to be.
The only way to tell a real rising wedge from a fake one is to look for price/volume divergences and make sure that the failure is still below the 50% Fibonacci retracement.
This piece of history shows that when a breakdown happens, the next goal is usually reached very quickly.
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