Rising Wedge Chart Pattern - Technical Analysis

Rising Wedge Chart pattern – Technical Analysis

 

This chart pattern, when it forms in a downtrend is largely misunderstood for a big upside reversal. But it soon fades away and continues its original down trend. Rising wedges can be a reversal of the trend or a continuation of the primary trend.  When they occur in a downtrend they should be regarded as continuation chart patterns.

This chart pattern has some specific characteristics that could be identified easily. The volume plays an important part in this chart pattern.  Although the volume will be erratic and also contracting and expanding.  This volume will not be supportive of the share price movement. This is an indication that the share price action is rather artificial that actual.  Another element is the highs and lows that form the candlestick chart patterns. Higher highs and lower lows could be observed. Professional traders and investors often will use this chart pattern as an opportunity to unwind their positions and create fresh short position. Seasoned traders can quickly understand the rising wedge pattern as “Bear Market Rally” and stay away until opportunity for trading comes.

Formation of Rising Wedge chart patterns in a chart

There can be several reasons for these Rising Wedge Chart pattern to appear in a chart. We can observe that this chart pattern begins with a big lower closing of share price. When the stock is still in downtrend, this sudden lower closing can be due to the company’s financial standing and news related with it. There can be other reasons like bad news about its product, labor unrest, rising debts, poor market outlook or litigation. The new low makes the stock attractive to buyers and some buying activity takes place at this point. As the share price begins to rise due to new buying activity, more buyers enter the market thinking that a reversal is in the making. Slowly the initial panic and the negative impacts about the company begin to fade away. When the volume is thinning, short term investors try to exit. This in turn increases the selling pressure further driving the share price still lower.

How low could the share price decline? 

Contrary to the other triangle chart patterns, the rising wedge pattern could almost certainly see lower share price declines. The technical targets for rising wedges are derived by subtracting the height of the chart pattern from the share price of breakdown level.  The breakdown level is the lower trend line of the rising wedge pattern formation. 

In most chart patterns we can observe this rising wedge formation in the down trend. Knowledge about this pattern will help an investor in judging the share market and take appropriate decisions.