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    Dennis Y.

    Crypto Trading ABCs: Rising Wedge Pattern Full Guide

    Ascending Wedge Chart Pattern Guide

    By now we've mastered how to read a graph, locate support and resistance lines, understand the basics of visual market behavior. We have also covered more or less sophisticated and tricky types of patterns:

    The skilled eye can see a few of them at once, while others require a long validation and comparison with resembling, but contradictory ones.

    Today we will talk about a simple, at first sight, shape: Rising Wedge (further on in the text - RW). It gives a good knowledge of the processes, but you should be watchful. It is often may be looking like an Ascending Triangle. In addition, it will indicate the completely opposite things in different trend directions. We will talk about their dissimilarities and nuances today.

    What should we know regarding the Rising Wedge Pattern?

    This shape refers to patterns of an expected trend reversal. If we may use such a figurative comparison of trader's "physics" and price "kinetics", its explanation looks quite logical using the concepts of force, acceleration, and inertia from the physical world. Let's explain it in simple words.

    Recall that in order to cut off the information noise it is better to look at time frames H4, H12, and even D1. Then the small swings within the day will not blur the picture for you and allow you to draw the support and resistance lines correctly. In addition, it is best to draw these lines by the body of the candle, not paying attention to the long spikes (which at 5-15-30 minutes TF may look like fearsome candles, but with the scaling of the time frame they become just spikes).

    So, after you have located and crafted support and resistance levels/zones, you may be surprised to find that motion from above and below is limited by the boundaries of this narrowing channel. Its lines are not parallel and taper over time. 

    Case 1. Uptrend

    It happens when we see a bullish sentiment chart, i.e. the price is increasing on the big picture. Its fluctuations, as we may find from the previous writing, fit into an uptrending wedge. Of course, there can be false breaks before the true one occurs. And it is the task of an experienced trader to find and predict this impulse movement.

    So, from the position of the price action concept, when it rises within this shape, we see that the movement loses its momentum. Buyers are essentially losing power, and are less and less willing to buy as the price rises. Each new upward momentum becomes weaker and weaker. And that logically leads to sellers getting in on the action. And that is often what becomes the "dead end" where the direction starts to reverse.

    Case 2. Downtrend

    Note that this shape can also appear in a declining movement. But it will be as if "magnetized" to the general "gravity" of a downtrend. Logically, it will already represent a figure of trend continuation.

    But despite this ambiguity, this shape has one simple rule: anyway, the Rising Wedge is a bearish figure.

    Once again, let's remind ourselves that the rule is not an axiom. And it doesn't mean that you may be 100% confident that things are going to happen the way they're supposed to. No, it's all about probability theory and mathematical expectation.

    How to Identify Rising Wedge Pattern

    The guidelines to follow when defining RW:

    • Top and bottom limits should not be parallel in any way. They should construct a kind of taper, which narrows over time.
    • In doing so, be sure to monitor the indicators of trading volumes. It is desirable if the consolidation is followed by a decrease in trading volumes (TV).
    • The penetration of the lower line of the wedge should be accompanied by a splash of TV.
    • The longer the timeline on which you were able to identify this figure, the more likely its correct progression and execution. That's why we spoke above about higher timeframes.

    Rising Wedge Pattern Target

    The trigger for the opening of a short position is a breakdown of the lower support line of this pattern.

    The target after this pattern is quite tricky to determine, especially in a particular pattern.

    Theoretically, the logic described for the triangle below is somewhat relevant to the Wedge. But because the strength of impulses there is different, you can use additional tools for more accurate target reflection, including Fibonacci levels or MA.

    You may consider how the asset's movement correlates to MA100, MA200, how the Fibonacci may intersect with the movement (e.g., 50% and 61.8%).

    Rising Wedge Pattern Target vs Ascending Triangle

    Continuing with the topic of triangle pattern behavior, we should note that even though the RW can often resemble an Ascending Triangle (further on in the text - AT), you shouldn't confuse these two.

    • As you remember from the review, triangles are "sneaky" (especially equilateral triangles). It's always hard to tell which way the price will ultimately move.
    • The approximate target for further price movement usually corresponds to the width of the triangle formed on the upside. Those points on the left, in the widest part of the figure, from which the construction of the figure begins, and set as a possible height for determining the targets of a breakdown of the triangle down or up.
    • Recall that the AT continues the upward price trend. But the probability is not that high, it is just possible. That is, despite its bullish nature, traders treat triangles very cautiously and only assume the trend will carry on. Whereas the RW is likely to turn it downward.
    • Also, AT ideally has a horizontal limit line, whereas RW has upward boundary lines.
    • The angle of convergence of the triangle will be much steeper than the gradual convergence of the support and resistance lines of the wedge.

    Relevant examples of RW

    To understand how this shape works in practice (and it occurs very often in the charts), let's review Polygon (MATIC) multi-month chart.

    Matic Price Chart

    Source: TradingView, MATIC/USDT, TF: 1D

    Since the rules we outlined above are to capture a large period of time rather than intraday swings, we could finally see a large move over a six-month period. The asset chart was in a steady uptrend as it formed a six-month upward wedge (yellow lines on the image) and reached its ATH on December 27. Since then, it went down sharply under its 20-50-200 EMA.

    Well, RW worked out exactly as expected:

    • growth;
    • boundary lines gradually converged (but not as strained as near the top of AT);
    • and then it broke down and started its decline.

    Although, we should acknowledge that December's trend change for the entire market was largely due to Bitcoin's decline.

    One more example of making an ascending wedge down we saw in early February 2022 on the chart of BTC/USDT.

    Rising Wedge Pattern

    Source: TradingView, BTC/USDT, TF: H4

    Here we do not have the longest period (the time frame is only 4 hours), but this case is also very indicative. The main idea is that TF shouldn't be 5-15-30 minutes. But look how clearly played the breakdown down.

    At this point, those who opened a short position could have put their stop orders at the lossless status. The most conservative players would have already fixed a part of the position (though with a possible loss of income).

    Bottom Line

    This shape is a distinct and straightforward one. It's not so easy to distinguish from a triangle in some cases. Moreover, it can appear on a downtrend. But it always has the same effect: no matter where it appears, there is an increased probability that price will go down.

    To increase the accuracy of your hypotheses, try to carefully analyze the asset in larger timeframes and with additional techniques. But whatever it is, never forget that crypto activity is a high-risk one. So, please, carefully check and recheck your hypotheses. Especially since in 2022, the objective will be not so much to catch super profits and X's, but not to lose (and if possible, multiply) your capital.

    Stay tuned! There will be many more guides, which will help you to make the right and reasonable decisions in a complex, but interesting, crypto market.

    The content of this article is for informational purposes only and should not be construed as investment advice. We ask you to do your research. This text is not a guide to action. The author's opinion may not coincide with the opinion of CoinJoy.

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