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Some of the most indispensable long-term chart patterns to know are the falling and rising wedge patterns. They will give you a competitive advantage over other traders and investors in the market, while also bringing in more money to your account if you use them properly.
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What Is a Wedge Pattern?
A wedge pattern refers to a trend of the market on an analysis chart which is often observed while trading assets, such as bonds, stocks, crypto, etc. This pattern is distinguished by a narrowing price range combined with either an upward (rising wedge) or a downward (falling wedge) price trend.
What Is a Wedge Formation?
A wedge formation is described as a pattern that is formed at the upper side or the lower side of a trend. It is a type of pattern development in which trade operations are limited to convergent straight lines, thereby making a pattern. The wedge normally requires roughly 3 to 4 weeks to finish its formation. This formation has a tilted slant that rises or falls in the same way.
Wedge Patterns as Trend Reversals
Wedge patterns are frequently, but not always, trend reversal patterns. They are made up of a support line and a resistance line that head in the same course as the range narrows until one of the support or resistance trend lines is hit, and the trend is reversed by a large volume.
Due to the confident mindset of the investors who anticipate the trend to persist, these reversals can be rather severe. The simplest approach to notice the narrowing of the channel, which is the initial significant clue that a reversal is brewing, is to use trend lines.
Rising and falling wedges are only a minor component of a transitional or main trend.
What is a Wedge Pattern in Crypto?
Since crypto is one of the most popular trading assets, it is quite usual to observe wedge patterns forming in its charts.
When the higher trend line is broken, the price is predicted to rise. Swing traders may trade using developing falling wedge formations before the actual breakout between the converging lines; however, just as it is with rising wedge patterns, traders should aim to wait for a full pattern with an identifiable breakout before they place an order to buy.
In crypto, identifying wedge patterns means identifying opportunities to make greater profits. When traders successfully pin what could possibly be a wedge pattern and end up being right, they earn a lot. This is why wedge patterns are so essential to the art of trading cryptocurrency.
For example, Bitcoin started forming a falling wedge pattern after it surged to almost $14k in June of 2019. Investors who could point it out saved their investment, but those who couldn’t, lost a significant amount. Despite that, Bitcoin recovered the losses a few months later by once again rising in value.
Types of Wedge Pattern
There are typically two types of wedge patterns. One of them is a rising wedge pattern, and the other one is a falling wedge pattern.
Rising Wedge Pattern
This pattern normally develops when the price of an asset has been growing over time, although it may also happen during a downward trend.
Falling Wedge Pattern
When the price of a security has been declining over time, a wedge pattern might form just before the trend reaches its lowest.
What is a Rising Wedge Pattern?
A rising wedge pattern is a chart pattern that appears when the market produces highs and higher lows while also narrowing its range. The narrowing of the range suggests that the uptrend is getting weaker, hence this pattern is deemed a reversal pattern when it appears in an uptrend.
This pattern is labeled bearish during a downtrend because the range of the market narrows into the adjustment, signaling that the adjustment is losing power and that the downtrend is about to resume.
Both of the boundary lines of a rising wedge pattern slope up from the left to the right. The bottom line climbs at a sharper angle as compared to the top one, despite the fact that they both head in the same exact direction, thereby leading to convergence. After passing through the bottom boundary line, prices normally fall.
With each successive price increase or wave upwards, volumes continue to decline, showing that market demand is waning at the price that is higher. When a bearish market is established, a rising wedge pattern is comparatively more accurate. Sometimes, what may appear to be a rising wedge pattern during a bullish trend, might in fact be a flag pattern or a pennant pattern, which takes roughly four weeks to form.
The rising wedge pattern is one of the more popular and more favored chart formations of several technical cryptocurrency traders and investors because of its relatively simple start and finish guidelines. Since the rising wedge pattern has a particularly distinct configuration, it can advise traders and investors to look out for impending top and reverse prices.
The rising wedge can appear on any given time frame on a chart, and develop quite speedily, making it somewhat challenging to notice in real-time, but not so much on a chart if you know the indications. Because the rising wedge pattern is commonly seen after prolonged trends, it can be very useful and effective in trading Bitcoin and other cryptocurrencies. The wedge pattern, for example, may serve as a cautionary indicator of an impending pullback if a cryptocurrency trend has advanced a bit too far a bit too fast.
Rising Wedge Pattern in Uptrend
In an uptrend, a rising wedge pattern is a reversal pattern that happens when the price makes greater highs and greater lows. Since a reversal pattern happens when the price pattern suggests a shift in the direction of the trend, a rising wedge in an uptrend is aptly deemed so. This pattern has been helpful to crypto technical analysts to examine and analyze the current market movements and anticipate the future ones, such that they may find the best time to invest and cash out. It allows traders to enter the market with short-term holdings.
What is a Falling Wedge Pattern?
When the market produces lower lows and lower highs with a narrowing range, the chart pattern known as a falling wedge is formed. This pattern is called a reversal pattern when it appears in a downtrend since the range contraction proposes that the downtrend is losing pace.
When this sort of pattern is discovered in an upswing, it is called a bullish pattern since the market range narrows as the correction progresses, signaling that the strength of the negative trend is lowering and the uptrend is about to resume.
Both of the boundary lines of a falling wedge tilt downwards from the left to the right. The top line dips more steeply than the bottom line.
Due to shrinking prices, volume continues to decline and trading activities slow down. Then, the breaking point arrives and the trading activities change. It is more likely for the prices to drift laterally and saucer-out as they exit the precise boundary lines of the falling wedge pattern before resuming the primary trend.
Both of the trend lines in the falling wedge are sloping downwards, with a shrinking channel signaling an impending decline. The price shows a dramatic surge upwards through the top line of the falling wedge on significant volume, while the trend lines move closer to merging. This catches investors and traders off guard, resulting in a breakout and continuing uptrend.
Is a Falling Wedge Pattern Bullish or Bearish?
The falling wedge is an example of a bullish pattern. When combined with the rising wedge pattern, it makes a significant pattern that indicates a shift in the direction of the trend. Generally, a falling wedge is seen as a reversal, though there are instances where it might help a trend continue rather than the reverse.
In an uptrend, the falling wedge denotes the continuance of an uptrend. When prices make lower highs and lower lows, in comparison to past price moves, this pattern is generated. It allows traders to take long positions in the market.
In a downtrend, the falling wedge pattern suggests an upward reversal. This is the main difference. When prices make lower highs and lower lows, in comparison to past price moves, this pattern is generated. Similar to the falling wedge pattern in an uptrend, it allows traders to take long positions. Moreover, it allows investors to enter the market.
What is a Symmetrical Triangle Pattern?
One of the continuation chart patterns is the symmetrical triangle pattern, wherein two intersecting trend lines link a set of peaks and troughs to create this pattern. In order to achieve an equal slope, the trend lines should be intersecting. This particular chart pattern implies a period of consolidation before the prices break out.
There are some things you must remember while trading with the symmetrical triangle pattern in order to prevent any loss or trap. First, to achieve an equivalent slope, the convergent trend lines must be converging. Then, a bullish symmetrical triangle must develop in a market with an uptrend, with prices breaking through the top trend line. Lastly, in a downturn, a bearish symmetrical triangle must develop, and prices must break through the bottom trend line.
Is a Symmetrical Triangle Pattern Bullish or Bearish?
Symmetrical triangle patterns can be both bullish and bearish. A bullish engulfing pattern is characterized by a candlestick on the chart that ends higher than the day’s opening. A bearish engulfing pattern is often the polar opposite of a bullish engulfing pattern.
Since both of these apply to symmetrical triangle patterns, depending on the case, this pattern can show as a bullish or a bearish trend.
A bullish symmetrical triangle is an example of a continuation chart with an uptrend. Two symmetrical trend lines that are convergent make the pattern. The action preceding its development has to be bullish in order for it to be termed bullish.
On the contrary, a bearish symmetrical triangle is an example of a chart pattern that exhibits a continuation of the downtrend. The action preceding the development of the symmetrical triangle has to be bearish for the triangle to be termed bearish. Symmetrical triangle patterns can sometimes also be referred to as wedge chart patterns, depending on the circumstances.
Not only is it extremely important to know these chart patterns to further better your trading skills, they are also extremely helpful and oftentimes scarily accurate when it comes to identifying possible price reversals and continuations. Wedge-shaped patterns in particular are considered significantly important indicators of a plausible price action reversal, which can prove to be beneficial during trading.