What is the Psychology Behind Rising Wedges?

• Rukayia Sultana Nishat
• 1 Nov, 2022

So what is a rising wedge? 

A rising wedge is a type of technical indicator that suggests a reversal pattern, and bear markets are good places to look for such patterns.

This pattern is recognizable on charts as an ascending trend with pivot highs and lows that converge toward a single point known as the apex as the price rises higher. 

This may herald a reversal in the movement as well as a continuation of the bear market if a decline in volume accompanies it.

Psychology Behind Rising Wedges

After going through the particulars of what the rising wedge is, let's take a look at what might be occurring during the process of its formation. Even while it's impossible to pinpoint exactly what causes a specific pattern to emerge, it's still a valuable exercise to make an effort to comprehend the psychological motivations that lie behind it. The simple act of speculating why particular actions take place will, over time, lead to numerous fresh realizations, notwithstanding the possibility that we will not arrive at a precise solution.
 

Having stated that the following is a potential interpretation of what a rising wedge is telling us about the market:

When the market is coming off a bullish scenario, most market players are bullish about the future and anticipate that prices will continue to rise. Nothing out of the ordinary appears to be happening, and the prices are climbing as expected.

Volatility and volume naturally start to decrease as the market moves deeper inside what is quickly developing as a rising wedge. The number of market players waiting for the price to break out in either direction (upward or downward) continues to rise.
 

On the other hand, because the market was increasing previous to the rising wedge and has continued to do so throughout it, a greater amount of weight is being placed on the prospect of a negative breakout occurring to break the pattern.

Consequently, an increasing number of people are selling their holdings to get out of the market before it begins to decline. To add insult to injury, this move also causes prices to go below the lower support line, which signals the beginning of the bearish price swing.