How to find and use them

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How to find and use them
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By CNBCTV18.com IST (Released)

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The wedge is a simple chart pattern where the resistance and support trend lines begin to converge, almost as if they are compressing a spring.

Charts are the backbone of crypto trading. They allow traders and investors to base their buying and selling activities on logic rather than luck. With data collected over multiple years and the cyclical nature of digital assets, we can examine patterns on a crypto chart and determine where a token’s price may be heading. One of the most common chart patterns is the rising or falling wedge. Follow us as we unpack the meaning of this chart pattern and explain how to spot it and use it to make better trades and investments.

What is a wedge pattern?

The wedge is a simple chart pattern where the resistance and support trend lines begin to converge, almost as if they are compressing a spring. And, like a compressed spring, the wedge pattern is full of potential, and it can turn uphill or downhill, depending on the circumstances.

A support trend line connects all the low points of an asset’s price chart, while a resistance trend line connects its high points.

The beveled pattern is sought after because it is the calm before the storm; it is consolidation before a rise or fall. Traders want to get in on the action when wedge patterns are ripe because they know the market will react to pressure.

Rising corner pattern

A rising wedge pattern occurs when there are higher highs and higher lows. However, the support trendline tends to climb at a steeper angle than the resistance trendline. This translates to a rising wedge pattern and usually indicates a possible reversal of an uptrend.

With each price increase, trading volumes begin to decrease. This indicates that the demand for the token decreases as the price increases. Therefore, a rising wedge pattern is usually accompanied by falling trading volumes.

Falling corner pattern

A descending wedge pattern is signified by lower lows and lower highs. Hence, it results in falling support and resistance trend lines. However, the resistance trendline drops sharply from the support trendline, resulting in a falling wedge pattern. It is generally seen as a bullish pattern, indicating that the negative trend is weakening and the uptrend may recover shortly.

Conclusion

According to CoinMarketCap, coin patterns typically take around 3-4 weeks to form. These patterns usually indicate a trend reversal and are therefore always a good signal for traders and investors. A rising wedge pattern is ideal for short sellers who want to bet against a token. On the other hand, a falling wedge pattern is usually a good indicator to buy, as prices could take off shortly.

However, in both cases, the chart patterns only serve as tentative signs. They are not guaranteed to cause price increases or reversals. Also, for better insights, one should evaluate these patterns in conjunction with other technical indicators such as moving average, relative strength index, trading volume, etc.

Finally, if you plan to use a wedge pattern as the basis of your investment/trading strategy, remember to only commit the amount of money that you can afford to lose entirely.

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