The Rising Wedge pattern forms when prices seem to be spiraling upward, and two upward sloping trend lines are created with the price hitting higher highs (1, 3, 5) and higher lows (2,4). The two pattern lines intersect to form an upward sloping triangle. Unlike Ascending Triangle patterns, however, 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. However, there is a distinct possibility that market participants will either pour in or sell out, and the price can move up or down with big volumes (leading up to the breakout).
If the price breaks out from the top pattern boundary, day traders and swing traders should trade with an UP trend. Consider buying a security or a call option at the breakout price level. To identify an Exit, add the pattern height to the breakout price level. The pattern height can be calculated by taking the difference between the highest high and the lowest low in the pattern.
To limit potential loss when price suddenly goes in the wrong direction, consider placing a stop order to sell at or below the breakout price.
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