Falling Wedge Pattern: Definition and Explanation How to Trade Falling Wedge Pattern

The Falling Wedge should be traded as a bullish pattern by buying the breakout to the upside as the previous uptrend resumes signaled by a break of price above the upper trend line resistance. Wedge-shaped patterns in particular are considered significantly important indicators of a plausible price action reversal, which can prove to be beneficial during trading. Both of the boundary lines of a rising wedge pattern slope up from the left to the right.

With each successive price increase or wave upwards, volumes continue to decline, showing that market demand is waning at the price that is higher. When a bearish market is established, a rising wedge pattern is comparatively more accurate. Sometimes, what may appear to be a rising wedge pattern during a bullish trend, might in fact be a flag pattern or a pennant pattern, which takes roughly four weeks to form. A wedge pattern refers to a trend of the market on an analysis chart which is often observed while trading assets, such as bonds, stocks, crypto, etc. This pattern is distinguished by a narrowing price range combined with either an upward (rising wedge) or a downward (falling wedge) price trend.

Bearish Wedge vs Bullish Wedge

It differs from the triangle in the sense that both boundary lines either slope up or down. Price breaking out point creates another difference from the triangle. Falling and rising wedges are a small part of intermediate or major trend. As they are reserved for minor trends, they are not considered to be major patterns. Once that basic or primary trend resumes itself, the wedge pattern loses its effectiveness as a technical indicator.

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Descending Triangle Pattern Breakout Strategy

Still, they can provide a great foundation, on which you may add various filters and conditions to improve the accuracy of the signal provided. In other words, you try to rule out those patterns that don’t work so well. While the most typical way of dealing with a breakout from a falling is to just follow it’s direction, some traders choose another approach. This will help the bullish side along, and will help the bullish breakout take place.

The falling wedge shows both trend lines sloping down with a narrowing channel indicating an immediate downtrend. As the trend lines get closer to converging, the price makes a violent spike higher through the upper falling trend line on heavy volume. This takes the participants by surprise triggering a breakout and subsequent up trend. When trading this pattern it is important to have confirmation of the breakout so it does not get the trader caught in a trap. These patterns are formed by support and resistance and price will move back to retest those levels to see if they hold.

How to trade bullish and bearish pennants with IG

On the other hand, you can apply the general rule that support turns into resistance in a breakout, meaning the market may bounce off previous support levels on its way down. Due to this, you can wait for a breakout to start, then wait for it to return and bounce off the previous support area in the ascending wedge. The rising wedge chart pattern can fit in the continuation or reversal category. When it’s a continuation pattern it will trend up, however the slope in the wedge will be against the overall market downtrend.

A bullish pennant is a technical trading pattern that indicates the impending continuation of a strong upward price move. They’re formed when a market makes an extensive move higher, then pauses and consolidates between converging support and resistance lines. In a rising wedge, both boundary lines slant up from left to right. Although both lines point in the same direction, the lower line rises at a steeper angle than the upper one. Prices usually decline after breaking through the lower boundary line. As far as volumes are concerned, they keep on declining with each new price advance or wave up, indicating that the demand is weakening at the higher price level.

What is the Falling Wedge?

Falling wedge patterns form by connecting at least two to three lower highs and two to three lower lows which become trend lines. A descending wedge is a bullish pattern that can help traders to identify a trend reversal in a downtrend and a continuation of an uptrend. As it can provide both signals, it should be used together with other technical analysis tools, including volumes, to confirm its validity.

In contrast to triangles, which are continuation patterns, Wedges are reversal patterns (like Head & Shoulders and Double/Triple Top/Bottoms). They signal a change of trend – via breakout or breakdown – following consolidation within a narrowing range where both support and resistance are either rising or falling. It is a bullish pattern that starts wide at the top and contracts as prices move lower. This price action forms a cone that slopes down as the reaction highs and reaction lows converge. In contrast to symmetrical triangles, which have no definitive slope and no bias, falling wedges slope down and have a bullish bias.

How long should the preceding downtrend be for a Falling Wedge to qualify as a reversal pattern?

Ultimately they are one of many indicators, which may, in the majority, be pointing the other way. Always use look at other indicators (moving averages, trendlines, price, price patterns, volume) to assist in the final trading decision. Lastly, the current trend of a share should always be respected – preempting a change can prove costly.