How to Day Trade a Rising Wedge Breakdown

Day Trading can be very rewarding if you know what patterns to look for on a candlestick chart. This article will explain how to use technical analysis to successfully trade a rising wedge breakdown. The reader should have some basic knowledge of technical analysis and real time candlestick charts.

Difficulty:

Moderately Challenging

Instructions

Things You'll Need

• Online Brokerage Account
• Real Time Candlestick Charts
• Basic Knowledge of Technical Analysis

1. 

   Spot the rising wedge while it is still in formation. A rising wedge is characterized by higher lows and higher highs, and should mark the top of the current uptrend. Even though prices continue to rise higher throughout the formation of the pattern, it is still considered a bearish pattern. On the chart, I have outlined the rising wedge with two yellow lines.

2. 

   Once you have spotted the rising wedge, you will be looking to enter a short position once the wedge breaks down. Wait until a candlestick closes outside of the lower rising trendline before entering your trade. Make sure that the volume is strong on the breakdown or the pattern could fail. On the chart, I placed a white circle around the candle that broke down out of the pattern as well as a white circle around the surge in volume.

3. Technical analysis is not always 100% accurate, so it is important to place a stop loss in case the rising wedge pattern fails. I would recommend placing a stop loss just above the lower rising trendline of the rising wedge in case price moves back into the wedge. If this occurs, the pattern has failed.

4. 

   Once your trade is entered and your stop loss is set, you have to decide when and how much profit to take out of the trade. Like most other patterns, the target price of the breakdown can be calculated. Subtract the height of the pattern from the breakdown level, and that will give you the target price of the breakdown. On the chart, I have drawn a vertical blue line that represents the height of the pattern, and a horizontal blue line that represents the target price when the height of the pattern is applied to the breakdown level. Once the target price is met, exit the trade, and begin looking for the next trade.

Tips & Warnings

• Sometimes rising wedge breakdowns take the stock price back to the base of the pattern.

• Once a breakdown occurs, the stock price generally likes to retest the lower trendline of the rising wedge.

• This works on any time frame, but is stronger on 60 minute, daily, and weekly charts.

• Be sure to take your profit when price finds support, or the trade can quickly turn against you.