An ascending wedge is a bearish chart pattern in technical analysis characterised by two converging trendlines that slope upwards. Also known as a rising wedge, the two upward-sloping trendlines connect a series of higher highs (the upper trendline) and a series of higher lows (the lower trendline). These trendlines converge towards a point.
Typically, volume decreases as the pattern progresses, suggesting weakening momentum and a bearish reversal. This means that the upward trend is losing strength and the price is expected to break downwards out of the pattern.
While it’s primarily a reversal pattern, an ascending wedge can sometimes act as a continuation pattern in a downtrend. For example, assume a cryptocurrency is in an uptrend: The price forms higher highs and higher lows, but the highs and lows are getting closer together. If the price breaks below the lower trendline with increased volume, it confirms the bearish signal.
Traders may interpret this as a signal to sell or short the asset once the price breaks below the lower trendline. A stop-loss is usually placed above the last high of the wedge to protect against false breakouts, and the profit target is often set at a level equal to the height of the wedge (the distance between the upper and lower trendlines at the beginning of the pattern).
