The Rising Wedge pattern forms when prices appear to spiral upward, with higher highs (1, 3, 5) and higher lows (2,4) creating two up-sloping trend lines that intersect to form a triangle. Unlike Ascending Triangle patterns, both lines need to have a distinct upward slope, with the bottom line having a steeper slope.
This pattern is commonly associated with directionless markets since the contraction (narrowing) of the market range signals that neither bulls nor bears are in control. There is a distinct possibility that market participants will sell out, and the price can move down with big volumes (leading up to the breakout).
If the price breaks out from the bottom pattern boundary, day traders and swing traders should trade with the trend DOWN. Consider selling a security short or buying a put option on downward breakout. To identify an exit, compute the target price for a Rising Wedge formation, take the highest high as the downward Breakout point and subtract the formation height to it. Formation height is the difference between the highest high and lowest low within the pattern.
To limit potential loss when price suddenly goes in the wrong direction, consider placing a stop order to buy back a short position or sell a put option at or above the breakout price.
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