Trading the Falling Wedge Pattern

In contrast to symmetrical triangles, which have no definitive slope and no bias, falling wedges definitely slope down and have a bullish bias. However, this bullish bias can only be realized once a resistance breakout occurs. The rising and falling wedge patterns are similar in nature to that of the pattern that we use with our breakout strategy. However because these wedges are directional and thus carry a bullish or bearish connotation, I figured them worthy of their own lesson. In a downtrend, the falling wedge pattern suggests an upward reversal.

Falling wedges are some of the most popular trading pattern around, and when used in the right manner, they can pinpoint great trading opportunities in the markets. As you might have expected, the rising wedge is very similar to the falling wedge. It’s simply the inverse version of the latter, both in meaning and apperance. As you might know, there are three different types of triangle patterns, which means that the falling wedge will differ in different regards. With the exact definition of the pattern covered, we’ll now look at what might be going on as the pattern forms. The trading and investing signals are provided for education purposes and if you use them with real money, you do so at your own risk.

Immediate Retest of the Broken Level

See the lesson on the head and shoulders pattern as well as the inverse head and shoulders for detailed instruction. Or in the case of the example below, falling wedge pattern meaning the inverse head and shoulders. If the market hits our stop loss in the image above it means a new low has been made which would invalidate the setup.

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First, to achieve an equivalent slope, the convergent trend lines must be converging. Then, a bullish symmetrical triangle must develop in a market with an uptrend, with prices breaking through the top trend line. Lastly, in a downturn, a bearish symmetrical triangle must develop, and prices must break through the bottom trend line. One of the continuation chart patterns is the symmetrical triangle pattern, wherein two intersecting trend lines link a set of peaks and troughs to create this pattern. In order to achieve an equal slope, the trend lines should be intersecting. This particular chart pattern implies a period of consolidation before the prices break out.

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falling wedge pattern meaning

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Candlestick Patterns You Need to Use in 2023

Usually, a rising wedge pattern is bearish, indicating that a stock that has been on the rise is on the verge of having a breakout reversal, and therefore likely to slide. When the price breaks the upper trend line, the security is expected to reverse and trend higher. Traders identifying bullish reversal signals would want to look for trades that benefit from the security’s rise in price.

Join thousands of traders who choose a mobile-first broker for trading the markets. Yes, wedges can be incredibly reliable and profitable in Forex if traded correctly as I explain in this blog post. The inverse is true for a falling wedge in a market with immense buying pressure. As you may have guessed, the approach to placing a stop loss for a falling wedge is very similar. It all comes down to the time frame that is respecting the levels the best.

quiz: Understanding AB=CD pattern

The rising wedge chart pattern is a recognisable price move that’s formed when a market consolidates between two converging support and resistance lines. To form a rising wedge, the support and resistance lines both have to point in an upwards direction and the support line has to be steeper than resistance. A rising wedge is a technical pattern, suggesting a reversal in the trend . This pattern shows up in charts when the price moves upward with higher highs and lower lows converging toward a single point known as the apex. There are 4 ways to trade wedges like shown on the chart

(1) Your entry point when the price breaks the lower bound…

  • However, in this case, the drop was short-lived before another rally occurred.
  • Because the two levels are not parallel it’s considered a terminal pattern.
  • This usually occurs when a security’s price has been rising over time, but it can also occur in the midst of a downward trend as well.
  • When a rising wedge occurs in an uptrend, it shows slowing momentum and may forecast a future drop in price.
  • The falling wedge usually precedes a reversal to the upside, and this means that you can look for potential buying opportunities.

The Falling Wedge pattern itself can form over a three to six-month period. This usually occurs when a security’s price has been rising over time, but it can also occur in the midst of a downward trend as well. Notice how all of the highs are in-line with one another just as the lows are in-line. If a trend line cannot be placed cleanly across both the highs and the lows of the pattern then it cannot be considered valid. To do so, some of the most common and useful trend reversal indicators include the Relative Strength Index (RSI), moving averages, MACD, and Fibonacci retracement levels.

Rising & Falling Wedge Patterns: The Complete Guide

Now that we have had a closer look at the definition and psychology, it’s time to have a quick look at how many traders approach the rising wedge pattern. Say EUR/USD breaks below the support line on its wedge, but then rallies and hits a new higher high. Both lines have now been surpassed, meaning that the pattern has broken.

falling wedge pattern meaning