What Are Rising Wedge and Falling Wedge Patterns?
 |
| What Are Rising Wedge and Falling Wedge Patterns |
Wedge patterns are converging trend lines that are often used in technical analysis as an indicator to see potential price reversals in financial assets. Check out the following article to find out what the rising wedge pattern is and what the falling wedge pattern is that is widely used in the trading world.
What is Wedge Pattern?
Reporting from Investopedia, the wedge pattern is a converging trend line consisting of two trend lines. Wedge patterns are usually formed based on asset prices in 10-50 trading periods.
The two trend lines are formed by connecting each of the highs of the candlesticks and the respective lows of the candlesticks. The wedge pattern itself has two patterns, namely the rising wedge and the falling wedge.
What is the Rising Wedge Pattern?
The rising wedge pattern is a technical indicator that signals a price reversal in the direction of the bearish trend. The potential for asset price decline is predicted to be greater after breaking the downward trend line.
This pattern is usually found when the asset price is moving up, where the support line (downtrend line) and resistance (upper trend line) form an upward sloping trend towards one point ( apex ).
Larry Swing from Investopedia revealed that this indicator is widely favored by professional traders. The reason is, once a breakdown occurs (decrease in asset prices), the price reversal target will be achieved very quickly.
Rising Wedge Pattern Example
Based on Omkar Godbole's report from Coindesk, a rising wedge pattern appeared on Bitcoin's daily chart in March 2021. Patrick Heusser, Head of Trading at Crypto Finance AG confirmed the statement after conducting analysis and confirming that the support line is strong enough at the four touchpoints.
Heusser added that a Bitcoin price movement that breaks through the downward trend line of an uptrend is considered an indication of a change from an uptrend to a downtrend. According to him, a move below $54,000 will confirm a rising wedge and open up opportunities for the Bitcoin price to fall to $47,000.
What is a Falling Wedge Pattern?
The falling wedge is the opposite of the rising wedge pattern where this pattern indicates a bullish movement of an asset. Usually found at the end of an asset price downtrend, this pattern is formed with support and resistance lines that are both pointing downwards. However, the downward movement of the resistance line is relatively steeper than the support line.
The falling wedge pattern itself is characterized by the shorter the candlestick on the asset price chart. This indicates that the bullish trend is being slowly formed by the buyers. When the asset price breaks through the upward trend line, a reversal will occur and the asset price will move higher.
Example of Falling Wedge Pattern
The falling wedge pattern has been seen on Bitcoin price charts from late 2018 to early 2019. Omkar Godbole reported that Bitcoin price movements experienced a slow drip (slowly down) which was seen on the daily chart for six weeks. This movement has formed a falling wedge pattern which indicates a bullish trend is about to occur.
According to Omkar, if the falling wedge pattern is confirmed with a breakout where the Bitcoin price breaks the upward trend line at $3,450, then Bitcoin price is expected to rise to a new resistance level at $3,658.
How to Trade with Rising Wedge and Falling Wedge Patterns
The rising wedge pattern and falling wedge pattern are patterns that traders can use to define strategies in crypto trading. Traders can determine when to open a position, set a stop loss, and consider the risks and benefits before deciding on trading activities.
Determine Risk and Profit Target
The CMC Markets team points out that traders should weigh the risks of loss and gain before opening a position in the asset market. Both of these factors can be taken into consideration depending on the risk profile and funds owned by a trader.
Open and Close Positions with Wedge Pattern
Patrick Foot from IG Markets advises traders to confirm the pattern before opening a trading position by waiting for a breakout to occur. When the price crosses the upper trend line on a downtrend, traders are advised to buy the asset. On the other hand, when the price breaks the downtrend line during an uptrend, the trader should close the position or sell the asset.
How to Determine Stop Loss with Wedge Pattern
Patrick adds that traders can place a stop loss at the previous high of the asset or slightly above the previous support level. If the price movement is still down (the support line fails to turn into a new resistance level ), then the trader can close the position and sell the asset.
Confirm Accurate Wedge Pattern
In some cases, traders often encounter fake wedge patterns. In this case, two ways can be done to ensure the authenticity of the pattern.
The first method is to ascertain the value of the trading volume of the asset. An increase in asset prices accompanied by a decrease in trading volume further strengthens the prediction that a price reversal may be imminent.
The second method is to determine the price movement of the asset against the Fibonacci retracement level. If the asset price movement is still below the 50% Fibonacci level, then the rising wedge pattern is considered valid and can be used.
Thus a brief review of what the rising wedge pattern is and what the falling wedge pattern is. For those of you who want to invest and trade crypto easily, download Pintu now! Buying and selling crypto at Pintu can start from only IDR 11,000, you know!
*Disclaimer:
This content aims to enrich the reader's information. Always do some independent research and use cold cash before investing. All buying and selling activities and crypto-asset investments are the responsibility of the reader.
Reference:
Coindesk, Bitcoin Price Charts Offer Glimmer of Hope to Struggling Bulls. Retrieved date: 11-11-2021.
IG Markets, Falling and Rising Wedge Chart Patterns: a Trader's Guide. Retrieved date: 11-11-2021.
Investopedia, Wedge. Retrieved date: 11-11-2021.
0 Comments