The wedge is used as a reversal or continuation pattern depending on its position on the price chart. There are two types of wedges – falling (descending) and rising (ascending).
Next, you will learn how to find the ascending wedge pattern and use it to identify selling conditions.
How to Find an Ascending Wedge in an Uptrend
An ascending wedge in an uptrend can be considered a reversal pattern that will appear when the price reaches higher lows and highs. The situation below occurs on the chart when the price range narrows. The price is between lines that become closer during the pattern’s formation. This process indicates a decrease in momentum and often precedes a reversal towards a decline. Therefore, you can look for selling conditions.
How to Find an Ascending Wedge in a Downtrend
An ascending wedge in a downtrend is a temporary price movement in the opposite direction, which is a partial market pullback. Like the ascending wedge in an uptrend, the pattern is characterized by the narrowing price range, which is between two lines forming the pattern. This indicates that the downtrend will continue. Therefore, you will need to find selling conditions again.
The chart below shows an ascending wedge in a downtrend.
Trading Using Ascending Wedge: Method One
While you are identifying an ascending wedge in any trend, one option could be to enter the market to place a short position (sell order) when the lower side of the wedge is broken. To avoid false breakouts, you should wait for a candle to close below the lower trendline before entering the market.
The chart below shows the area where the price breaks through the lower trendline (support). In this area, you can place a sell order.
Black 1 – is the area where the price breaks the support (lower trendline). Orange 1 – is a short position (sell order).
The chart below demonstrates the necessary stop-loss placement area on the upper side of the ascending wedge.
Black 1 – is the area where the price breaks the support (lower trendline). Orange 1 – is a short position (sell order). Red 2 – is a stop-loss.
The chart below shows the profit level. To determine it, you need to take the height of the backside of the wedge and postpone this distance downwards from the breakout of the trendline.
Black 1 – is the area where the price breaks the support (lower trendline). Black 2 – is the backside of the wedge. Black 3 – is the distance between the entry point and the profit level. Orange 1 – is a short position (sell order). Red 2 – is a stop-loss. Green 3 – is the profit level.
Trading Using Ascending Wedge: Method Two
The second method involves waiting for the price to fall below the trendline or for the support to break, as in the first method. Then, you need to place a sell order when the price retests the trendline. Here, the breached support will turn into resistance.
The chart below shows the process of opening a short position.
Black 1 – is the point where the price encounters resistance at the lower part of the wedge. Orange 1 – is the short position.
The stop-loss appears above the new resistance area. The chart below provides an example.
Black 1 – is the point where the price encounters resistance at the lower part of the wedge. Orange 1 – is the short position. Red 2 – is the stop-loss.
The chart below shows the profit level. Similar to the first method, to measure it, you need to take the height of the backside of the wedge and postpone this distance downwards from the breakout of the trendline.
Black 1 – is the point where the price encounters resistance at the lower part of the wedge. Black 2 – is the backside of the wedge. Black 3 – is the distance between the entry point and the profit level. Orange 1 – is the short position (sell order). Red 2 – is the stop-loss. Green 3 – is the profit level.