The speaker identifies a rising wedge pattern on a chart with two trend lines where prices bounce between each line before breaking downwards. They suggest trading the breakdown or waiting for a retest of the pattern for a good trade opportunity. They also provide examples of similar patterns on a 15-minute chart where one trend is going up while the opposite is a falling wedge pattern that breaks above a retest and continues higher.
Understanding the Rising Wedge Pattern for Trading
When it comes to trading, it’s important to have a good understanding of different chart patterns in order to make effective trades. One such pattern is the rising wedge pattern, which is characterized by two trend lines that converge with each other over time. In this article, we’ll take a closer look at the rising wedge pattern and explore how you can use it to make profitable trades.
What is the Rising Wedge Pattern?
The rising wedge pattern is a bearish pattern that occurs when two trend lines converge with each other, with the lower trend line rising at a steeper angle than the upper trend line. This pattern typically indicates that there is a bearish bias in the market, as price bounces between the two trend lines before eventually breaking down and reversing trend.
Identifying the Rising Wedge Pattern
Identifying the rising wedge pattern is relatively straightforward. Look for two trend lines that are converging with each other, with the lower trend line rising at a steeper angle than the upper trend line. Price will typically bounce between these trend lines before breaking down and reversing trend.
Trading the Rising Wedge Pattern
When it comes to trading the rising wedge pattern, there are a couple of different approaches you can take. You can either trade the breakdown when price falls through the lower trend line, or you can wait for a retest of the pattern before entering a short position.
On the daily chart, the breakdown occurs when price falls through the lower trend line. This is typically the most profitable trade, as it allows you to catch the beginning of a trend reversal. However, it can also be riskier, as there is a possibility that price could bounce back up and retest the pattern before continuing down.
If you prefer a less risky approach, you can wait for a retest of the pattern before entering a short position. This occurs when price breaks down through the lower trend line, retraces back up to retest the pattern, and then continues down. This approach allows you to enter a trade with a tighter stop loss, as you can place your stop loss above the pattern’s upper trend line.
Examples of the Rising Wedge Pattern
The rising wedge pattern can be seen on charts at all time frames. On the 15-minute chart, it can be used as a trend continuation pattern, with price bouncing between the two trend lines before breaking out above the upper trend line and continuing higher.
Similarly, the falling wedge pattern can be used as a trend continuation pattern, with price bouncing between the two trend lines before breaking out above the upper trend line and continuing higher.
In conclusion, the rising wedge pattern is a bearish pattern that can be used to make profitable trades. By identifying the two converging trend lines and waiting for a breakdown or retest of the pattern, you can enter short positions and catch the beginning of a trend reversal. As with any trading strategy, it’s important to practice good risk management and always use stop losses to limit potential losses.