Written by and copyright © 2005-2013 by Thomas N. Bulkowski. All rights reserved.
For more information on this pattern, read
Encyclopedia of Chart Patterns, Second Edition,
pictured on the right, pages 811 to 826. That chapter gives a complete review of the chart pattern, including tour, identification guidelines, focus on failures, performance statistics, trading tactics, and sample trade. Below is just a sliver of the information contained in the book.
Rising wedges, especially for downward breakouts, are some of the worst performing chart
patterns. Downward breakouts have unacceptably high failure rates and small post breakout declines. Also, pullbacks
occur almost two-thirds of the time and throwbacks happen almost three-quarters of the time.
Rising Wedge Important Bull Market Results
Overall performance rank for up/down breakouts (1 is best): 18 out of
23; 20 out of 21
Break even failure rate for up/down breakouts: 8%; 24%
Average rise/decline: 28%; 14%
Throwback/pullback rate: 73%, 63%
Percentage meeting price target for up/down breakouts: 58%, 46%
The above numbers are based on hundreds of perfect trades. See the glossary for definitions.
Rising Wedge Identification Guidelines
|Price trend||Can be any direction leading to the pattern.|
|Shape||A narrowing and rising triangle shape.|
|Trendlines||Price bounces between two up-sloping and converging trendlines.|
|Touches||Price should touch each trendline at least five times to outline a good pattern. That's 3 touches of one trendline and 2 of the opposite.|
|Duration||3 weeks is the minimum duration, otherwise it's a pennant.|
|Volume trend||Trends downward at least 74% of the time until the breakout.|
|Breakout||Can be in any direction but is downward 69% of the time.|
|Confirmation||The pattern confirms as a valid one when price closes outside one of the trendlines.|
Rising Wedge Trading Tips
|Measure rule||For downward breakouts, the lowest valley in the pattern
(A) is the price target. Alternatively, compute the
height from the highest peak (B) to the lowest valley
(A) and then multiply it by the above
“percentage meeting price target.” Add it to (upward breakouts) or
it from (downward breakouts) the breakout price (the point at which price crosses
the trendline, shown in the Measure Rule figure to the right as a blue line for this downward breakout) to get
a price target (C).|
|Breakout||The average distance to the breakout is 58% to 64% of the way to the triangle apex (where the trendlines join).|
|Confirmation||Wait for a close outside one of the trendlines before taking a position.|
|Throwbacks and pullbacks||Throwbacks and pullbacks hurt performance.|
|Weakness||Upward breakouts may show weakness two weeks after the breakout.|
|Width||Wide patterns perform better than narrow ones.|
The Measure Rule
Rising Wedge Example
The above figure shows an example of a rising wedge chart pattern. Each trendline has at least three distinct minor
high or minor low touches, sandwiched between two converging trendlines. The upward breakout from this rising wedge is
unusual because of its rarity. A throwback follows the breakout in this example.
-- Thomas Bulkowski
Other Rising Wedge Examples
Copyright © 2005-2013 by Thomas N. Bulkowski. All rights reserved. If opportunity doesn't knock, build a door. -- Milton Berle.