I wanted to share an Educational post discussing the 'Rising Wedge' pattern, which is a BEARISH pattern and one we were looking for and traded often back in late 2018 as the market started to downtrend....
Let's get straight to it!
Here are a few examples of Rising Wedge patterns and what they look like:
Notice the huge volume break down in the share price for a few days marking institutional selling(aka Distribution!)... usually these high volume distribution phases start from a big catalyst such as a very poor earnings report(Bearish Power Earnings Gap) for example!
The price than attempts to rally back or bounce on very low volume as the price actions looks and "feels" very anemic and uninspiring....
before price starts to roll over once again to the downside!
As many of you have seen lately, I've been sharing more and more RISING WEDGE setups in the AOT private twitter.
Rising Wedge patterns are bearish continuation patterns. They are the exact opposite of Falling Wedges(which are bullish patterns)....
I especially like Rising Wedge patterns where the stock starts to bump into resistance areas such as key Moving Averages or Downtrend trendlines which act resistance ...
Rising Wedges looks like this:
This pattern works best in stocks that already in a down trend.... So you're essentially looking for a low quality, meager, low volume bounce(where the stock simply bounces to relief oversold conditions, aka "Dead cat" bounce) before it resumes the previous trend, which is DOWN...
I especially like to use this pattern in tandem with a "BEARISH Power Earnings Gap" : so a stock that gaps down and sells off after reporting poor earnings, the stock then makes a weak multi-day, low volume bounce that bumps and stalls into resistance... then look for the stock to roll over to downside again...
For example, last week on the private twitter, i shared this DDD short setup ....
Notice how DDD gapped down a few days ago and sold off hard all day after reporting poor earnings...
The stock then made a weak multi-day bounce to form a mini Rising Wedge pattern before rolling over with the Nasdaq late last week...
Can see how DDD started to roll over to downside ....
And then started to accelerate to downside....
GS, did a similar Rising Wedge pattern last week as well ....
Since this market has been very volatile lately, it's not a bad idea to reduce size but widen stop losses a bit to allow more room for stocks to wiggle around while they complete trading patterns...
You can enter a short position while the stock is stalling resistance near the Rising Wedge's triangle apex or once it starts to actually roll over to the downside once you've identified a good looking Rising Wedge pattern.
Stop loss would go right above the Rising Wedge pattern's most recent pivot highs.
I hope you found this post helpful!!
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