I've noticed that many traders overlook a very useful pattern that works great for catching bearish reversals. It's about the ascending wedge trading pattern — a pattern that forms when the price keeps rising higher, but the momentum clearly weakens. The upper and lower trend lines converge, as if the price can no longer push higher as it did before.

Here's why it works. When you see an ascending wedge on the chart, it usually indicates that the bullish trend is losing strength. The price is still rising, but not with the same enthusiasm. Volume decreases as the pattern develops — this is the main signal that fewer participants are involved. When volume drops and the price breaks below the support line, that's when I open a short position.

The ascending wedge can work in two ways. First — as a reversal after a long upward trend. Second — as a pause within a downtrend before the price continues to fall. Both scenarios offer good opportunities for short entries if approached correctly.

How I trade it. First, I wait for the pattern to form — at least two higher highs and two higher lows with converging lines. Then I look at the volume: if it’s decreasing, it means the pattern is developing properly. The most important thing — don’t enter too early. I wait for a break below the lower trend line, with a candle closing below that level. This gives me confidence that it’s not a false signal.

I place my stop-loss slightly above the last high inside the wedge or above the upper trend line. My target is simple: I take the height of the entire wedge at the start of the pattern and project that distance downward from the breakout point. I often use a trailing stop to lock in profits if the price moves in my favor.

What helps confirm the ascending wedge trading? RSI often shows bearish divergence — the price makes new highs, but RSI can’t go higher. MACD can also give a bearish crossover signal right before the breakout. If the price is also below the 50-EMA, my confidence in the trade increases.

Mistakes I avoid. The main one — entering before the breakout. I’ve seen many times how the price bounces off the lower line, and those who entered early get stopped out. Another mistake — ignoring volume. A breakout on low volume often turns out to be false. Third — not using a stop-loss. Without it, one bad trade can wipe out the entire deposit.

The ascending wedge is a reliable tool if you follow discipline. The key — patience. Not every converging pattern works, so I wait for clear conditions: pattern formation, volume decline, indicator confirmation. When everything aligns, the probability of success sharply increases. That’s the essence of this pattern.