Rising Wedges
Rising Wedge:A rising wedge is a bearish chart pattern that forms when the price makes higher highs and higher lows within converging trendlines, sloping upward. This pattern indicates that the upward momentum is weakening, as the price moves within a narrowing range. Despite the upward slope, the converging nature of the wedge signals that the market is losing strength, often leading to a reversal. The rising wedge forms after either an uptrend or a downtrend and is typically seen as a precursor to a bearish move.
Impact on Price:A rising wedge is generally seen as a bearish pattern, as it signals weakening upward momentum. Once the price breaks below the lower trendline of the wedge, it typically results in a strong downward move. The breakdown often leads to a reversal of the prior uptrend, with the price falling sharply. Traders expect the drop to be at least the height of the wedge, indicating significant downside potential after the breakout.
Falling Wedges
Falling Wedge:A falling wedge is a bullish chart pattern that forms when the price makes lower highs and lower lows within converging trendlines, sloping downward. This pattern suggests that selling pressure is easing, and the market is preparing for a bullish breakout. The falling wedge signals a period of consolidation where the range of price movement narrows, often leading to a reversal of the downward trend. It can form during either a downtrend or an uptrend and usually predicts an upward price breakout.
Impact on Price:A falling wedge, in contrast, is a bullish pattern. When the price breaks above the upper trendline of the wedge, it signals a potential upward breakout. The breakout often results in a strong bullish move, as the market reverses the prior downtrend. Traders expect the price to rise by at least the height of the wedge, with the breakout signaling the resumption of upward momentum and providing a potential buying opportunity.