Things You'll Need:
- Online Brokerage Account
- Real Time Charts
- Basic Knowledge of Technical Analysis
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Step 1
First you need to identify a wedge pattern forming on the stock charts. It can be on any time frame, whether it be a 1, 5, 10, or 60 minute chart. Rising wedges are characterized by higher highs and higher lows that converge to a point. It is a bearish pattern and you should expect price to break down out of the wedge near the convergence point and head much lower. In this example, the rising wedge pattern breaks down but fails to continue moving lower. On the chart I have outlined the rising wedge in green.
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Step 2
Once price breaks below the lower trendline of the rising wedge you would enter a short position. On the chart, I have circled the candlestick in white in which you would enter your trade. Normally, a wedge breakdown would bring price back down to levels seen at the beginning of the wedge formation.
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Step 3
Once you have entered your trade, place a stop loss just above the lower trend line of the rising wedge in case the price moves back into the pattern and continues higher.
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Step 4
Monitor the trade for a good exit point, and watch for price to find support at a previous support level. If the support level continues to hold, price will begin to move higher and the rising wedge pattern will have failed. Once you see that the support level is holding, exit your position for a small profit and begin searching for the next day trade. On the chart I have drawn a yellow line to indicate where price found support and invalidated the rising wedge pattern.
