The second favorite chart pattern is the Rising Wedge or Bear Wedge. Sibling of the Falling Wedge. These 2 basic chart patterns really represent the basic cyclical waves that generally describe the movement of the market. O boy I said waves. Not talking about Elliot Waves. Elliot Waves is a different tool all together. But yes I did say waves. If you press the issue hard enough, go into a lower timeframe chart, a 1min or even a 133/233 tick chart. You should be able to draw, ever 1-3 candles, a series of bull wedge then bear wedge on after the other.
Bull Wedge – Bear Wedge – Bull Wedge – Bear Wedge / Accu – Dist – Accu – Dist …
Rising WedgeStockCharts.com Definition
The rising wedge is a bearish pattern that begins wide at the bottom and contracts as prices move higher and the trading range narrows. In contrast to symmetrical triangles, which have no definitive slope and no bullish or bearish bias, rising wedges definitely slope up and have a bearish bias.
… As a continuation pattern, the rising wedge will still slope up, but the slope will be against the prevailing downtrend. As a reversal pattern, the rising wedge will slope up and with the prevailing trend. Regardless of the type (reversal or continuation), rising wedges are bearish.
“The rising wedge is a bearish pattern …”
Well its going up? An upward sloping triangle. But its Bearish? Yeah isn’t that a bit of twist in your brain? Just before it reaches the apex of the wedge, about 2/3rds, the price action dips. Ergo Bear Wedge. The name describes the outcome. It is a distribution pattern. As the price travels up the channel, an exhaustion of the bullish tones set in, and the distribution process takes over near the apex of the wedge and the price drops accordingly.
What will hamper Rising Wedge?
If the longer term has set in motion its accumulation pattern and your wedge is no where near the top of the push. Your rising wedge will fail. Longer term trends override shorter term trend. Generally the market is really bullish in all timeframes. The distribution fails to offset the bullish volume. You may notice the candles looking toppy, but really it is basing again. You may have a low point scalp to the down side, and even closing outside the wedge itself. And then the candles will ride and almost hug the lower trend line of the wedge, continuing its upward momentum.
The reason it failed. This chart shows that it was still bullish. See how in the previous chart the candles hugged the bottom of the channel. This 4hr charts shows that the bearish accumulation was not as drastic as in the 1hr, it was absorbing much of it. Wedge fails.
Comparative Chart Analysis
Generally all chart patterns have a probability of failure. The astute trader knows how to use his charts and compare long term vs short term to derive the actual outcome. The astute trader doesn’t focus on how something will fail. The astute trader looks for an opportunity that will work. Up or down. The astute trader is not stuck on 1 chart and forms a strong bias based on that one chart. It is through comparative analysis, that the probability of an opportunity can be gauged to help you limit your risks.
Text Book vs Actual
A word about chart patterns. The purist and inexperience will always look for the text book chart pattern. That isn’t really a double bottom its weird and skewed not like the picture at all. This is why people miss out on the opportunity, they don’t recognize potential. What is really happening? They don’t recognize how accumulation and distribution process can work. Ugly is profitable. Its in the chart.
A great resource to visit for chart patterns, visit The Pattern Site.
thanks fir this man
Hi Kewltech ! I really enjoy the information from your blog. I wanted to ask why is issue 06 missing ?