1. Prior Trend. To be skilled to meet the criteria of a reversal design, there have to be a prior trend to reverse. The rising wedge generally forms over a 3-6 month period of time; this can qualify as an intermediate or long term reversal. At times the current trend is enclosed within the rising wedge. This design at other times will form after an extended share price advance.2. Upper Resistance Line: It typically requires two response highs to define the upper resistance line although if likely three. The following reaction high should be higher than the preceding high.
3. Lower Support Line: It typically requires two reaction lows to define the lower resistance line but preferably three. The following response low should be higher than the preceding low.
4. Contraction: As the pattern unfolds the upper resistance line and the lower support line are converging towards each other. The positive advance from the response lows (the lower support line), become shorter in term. This makes the rally weak. This has the outcome of the upper resistance line not keeping pace with the lower resistance line, the two lines so converge indicating an over furnish of stock as the share price rises.
5. Support Break: the bearish confirmation of the pattern does not occur until after the support line is violated in an outstanding manner. It is usually practical to wait for a break of the previous reaction low but once support is breached, there is occasionally a reaction rally or bounce to test the newly found resistance level.
6. Volume: Ideally the volume will weaken as the share price rises, the wedge begins to evolve. The progress in volume at the support line break can be interpreted as a bearish indicator or its verification.
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