“Rising Wedge” and “Falling Wedge” Price Pattern Trading Strategy Guide

[Video: How to Use the “Wedge” Pattern to Predict Reversals]

The “wedge” chart pattern is one of the useful early warning signs of an impending reversal in the price action, and it is quite easy to spot.

It provides a good low risk, high reward trading opportunity as price gets squeezed as it nears the tip of the wedge.

What are the 3 strategies you can use to trade this pattern?

 

Content Table for “Wedge” Price Pattern Tutorial

 

“Wedge” Price Pattern Tutorial: Key Learning Points

In this video tutorial, I will be covering the wedge chart pattern in depth (both the rising wedge and the falling wedge), including its shape, underlying psychology, and 3 effective trading strategies which you can use to trade it.

I will also be talking about the difference between the wedge pattern and trend channels, because many new traders have difficulty in distinguishing between these 2 types of patterns.

 

The “Wedge” Price Pattern is a Reversal Price Pattern

Based on the 2 main categories of chart patterns, I would classify the wedge pattern under the “Reversal Patterns” category, since it leads to a change in direction of price movements.

Do note, however, that a wedge can also be a “Continuation Pattern”, if it is part of a larger pattern. I will cover this more in depth later.

 

Comparison: “Rising Wedge” Price Pattern vs. “Falling Wedge” Price Pattern

Contrary to our intuition, a rising wedge is actually bearish, whereas a falling wedge is bullish.

Observe the shape of the wedge, which is formed by 2 sloping lines which squeeze prices together at the tip.

 

Comparison: “Rising Wedge” Price Pattern vs. “Bullish Trend Channel” Price Pattern

When I teach the wedge pattern, I get quite a lot of new traders asking me, “isn’t the wedge similar to a trend channel?”

For clarity, a trend channel is usually comprised of 2 parallel sloping lines which contain prices within, and this is usually seen when prices are trending order in one direction.

In the slide above, we compare an uptrend channel (which is bullish), with a rising wedge (which is bearish).

At first glance, they both look bullish because both are sloping upwards, however the rising wedge is bearish because it actually shows a decline in buying power over time, as indicated by the less steep upper line.

 

Comparison: “Falling Wedge” Price Pattern vs. “Bearish Trend Channel” Price Pattern

The same reasoning applies to the downward price action as well, which is why a downtrend channel is bearish, whereas a falling wedge is bullish, because the latter shows a decline in selling power over time.

 

How to Identify the “Rising Wedge” Price Pattern

This is how a rising wedge looks like on the chart, and in this example, it lead to the end of the current trend, and resulted in a price reversal once price broke down from completion of the wedge pattern. The longer the pattern takes to form, and the larger the pattern, the larger the subsequent move will be.

 

How to Identify the “Falling Wedge” Price Pattern

This is an example of a falling wedge, which is bullish, and once price broke out from the pattern, it lead to a strong move upwards.

In this chart, we can see that the major trend is bullish (uptrend), and the wedge was a small bearish correction within this larger trend. So when the wedge pattern completed, the short-term bearish trend (which was the falling wedge) reversed, leading to a continuation of the major long-term bullish trend.

 

Why & How Does the “Wedge” Price Pattern Form?

At this point of time, some of you might be wondering, why is the rising wedge (where price is moving upwards) bearish, whereas the falling wedge (where price is moving downwards) bullish?

The answer lies in the psychology and formation of the pattern.

In a rising wedge, although new higher highs and higher lows are made, each subsequent high is weaker (exceeds prior high by less), which means there are less and less buyers coming in, and perhaps more sellers stepping in, awaiting a reversal.

And in a falling wedge, although new lower highs and lower lows are made, each subsequent low is weaker (exceeds prior low by less), which means there are less and less sellers coming in, and perhaps more buyers stepping in, awaiting a reversal.

In both cases, it eventually leads to the opposite side taking control of the market, thus leading to a reversal in the price action.

 

Trading Strategies for the “Wedge” Price Pattern

So, how do you tackle this chart pattern?

There are 3 simple trading strategies you can use:

  1. Entering before the completion of the pattern (breakout for falling wedge and breakdown for rising wedge)
  2. Entering during the breakout (when the trendline is broken)
  3. Entering after the breakout (when the new trend has started)

 

Trading Strategy 1: Enter Before Breakout of the “Wedge” Price Pattern

The first strategy is to enter before the breakout/breakdown happens, because usually when the break happens, price moves very quickly and explosively, so you might miss it if you do not look at the charts every day.

So one way to avoid that is to enter near the tip of the wedge (yellow circle) when prices are being squeezed, and there is a good chance that the pattern is ripe for a break.

For this strategy, the risk is relatively low and the reward to risk ratio is good. For the EP, SL, TP levels, you can refer to the video.

 

Trading Strategy 2: Enter During Breakout of the “Wedge” Price Pattern

The second strategy is to enter at the point of the break, which is when prices actually do break the trendline. In this example, I have indicated it with a blue circle.

Sometimes, the break is controlled, such as in this chart, but if you look at the previous chart, the break might be fast with long bars, making it hard to enter the trade during the break.

 

Trading Strategy 3: Enter After Breakout of the “Wedge” Price Pattern

The third and final strategy is to look for opportunities to trade in the direction of the new trend once the wedge pattern has completed (including the break), such as entering on pullbacks. I have indicated a few potential entries using the yellow circles.

For the EP, SL, TP levels, you can refer to the video as well.

 

When to Take Profit for the “Wedge” Price Pattern?

After entering a trade, the next big question is what profit target to use when trading the wedge pattern.

Thankfully, there is an easy measuring techinque for this chart pattern.

All you need to do is determine the height of the wedge (by measuring the longest point), and project that height from the point of the break. That will give you the profit target.

 

Trading Tips for the “Wedge” Price Pattern

To conclude this blog post, I will share some additional tips on trading this pattern, some of which I might have mentioned in passing in earlier parts of the post.

One of the major tenets of trading is to trade with the trend, as the odds will be in your favour.

So when you are trying to trade a reversal of the trend, you need to make sure the pattern (in this case the wedge pattern) is large and powerful enough (relative to the size of the trend) to be able to reverse the trend.

If the wedge is small, then most likely it is only a small counter-trend move within the larger trend, such as a flag or pennant on a larger timeframe.

And lastly, having confluence increases your odds as well, so it helps if there is:

  • Support below your entry price if you are buying into a falling wedge
  • Moving averages below your entry price if you are buying into a falling wedge
  • Resistance above your entry price if you are shorting into a rising wedge
  • Moving average above your entry price if you are shorting into a rising wedge

Trade safe, and don’t forget to watch the video and subscribe to our Youtube channel if you have not done so! 😀

 

“Cup and Handle” Price Pattern Trading Strategy Guide


[Video: How to Trade Explosive Price Moves with the “Cup & Handle” Pattern]

The “cup and handle” pattern is an accumulation pattern that is rarely seen, but can lead to powerful explosive moves once the pattern is completed.

What is the best way to trade this pattern so that you can enter on low risk, and still capture the large moves without having the risk of getting stopped out too early?

Enjoy the video! 😀

 

In this video tutorial, I will be covering the “cup and handle” chart pattern, also known as the “cup-and-handle”, cup & handle” or simple “C&H” for short.

This pattern is not that commonly seen, but once completed, ash the potential to lead top strong explosive price moves which can last a long time, hence it pays to keep a lookout for them.

By understanding the underlying psychology of the “cup and handle” price pattern, you will be able to have a better understanding of how and why it forms, and why it is a sign of accumulation (buying) by the big players.

In the video, I will also talk about some of the effective trading strategies you can use to trade this chart pattern, and how to increase the odds of success when executing the trading strategies.

 

Based on the 2 main categories of chart patterns, I would classify the “cup and handle” pattern under the “Reversal Patterns” category, since it usually forms after a prolonged downtrend where prices start to bottom out and form a reversal base, before leading to a change in direction (breakout).

Do note, however, that a wedge can also be a “Continuation Pattern”, if it is part of a larger pattern, and forms as a consolidation base in the middle of a prolonged uptrend.

For example, after price has been moving up for quite some time, it might take a pause and move sideways for a while (forming the cup and handle pattern), before breaking to new highs and resuming the uptrend.

 

Unlike other chart patterns, the “cup and handle” pattern does not work equally for both the bullish and bearish scenario, as it is almost exclusively found in the bullish scenario only. Hence, we don’t hear people talking about “bullish cup and handle” or “bearish cup and handle”, because when they say “cup and handle”, it is understood to refer to the bullish version.

In the diagram above, you can see that the price pattern consists of a larger accumulation base (the cup), before forming a smaller accumulation base (the handle), before finally leading to a breakout.

 

Now, let’s take a look at the “cup & handle” pattern on a real price chart.

I have even include a teacup for comparison. 😀

From a practical viewpoint, we will usually start to notice the pattern only when it starts forming the “cup” part of the pattern, which is quite identifiable by the smooth gradual curve upwards of higher highs and higher lows, as mentioned in my swing counts video.

The confirmation will come from the “handle” part of the price pattern, which is like a small pullback before the price explodes upwards. You can think of it as pushing down on a loaded spring, to build up more pressure just before the release.

 

 

Trade safe, and don’t forget to watch the video and subscribe to our Youtube channel if you have not done so! 😀

“Expanding Triangle” Price Pattern Trading Strategy Guide


[Video: Have You Seen this Rare “Expanding Triangle” Pattern?]

The expanding triangle is one of those rare chart patterns which we seldom see, so many traders are unsure how to react upon seeing them.

But when you do find them, they provide great trading opportunities for high reward and low risk trades.

So, what are the 3 main strategies to tackle this chart pattern?

Enjoy the video! 😀

“Symmetrical Triangle”, “Ascending Triangle” and “Descending Triangle” Price Pattern Trading Strategy Guide


[Video: How to Tackle the “Big 3” Triangle Chart Patterns]

Have you stared impatiently at the price going sideways on the chart and wondered when would be a good time to take a position?

The triangle pattern is one of the most common consolidation patterns, but it can be tricky to time it correctly, especially if you are not able to distinguish between the 3 different types of triangles.

In this video, I share 2 trading strategies and many useful tips on how to tackle this chart pattern, and add it to your list of profitable trading patterns!

Enjoy the video! 😀

“Head and Shoulders” and “Inverted Head and Shoulders” Price Pattern Trading Strategy Guide


[Video: Strategy Guide for Head & Shoulders Reversal Pattern]

This reversal pattern is one of the most powerful patterns, yet it is also surprisingly easy to spot.

If you want to avoid major market crashes, and learn how to buy near market bottoms, then you will definitely want to master this pattern!

Enjoy the video! 😀