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Falling Wedge

A bullish reversal pattern that forms when the price moves lower within a narrowing downward-sloping channel. This pattern indicates that selling pressure is weakening, and a breakout to the upside is likely. It signals that buyers are gradually taking control, leading to a potential trend reversal from a downtrend to an uptrend.

Significance

  • Suggests that sellers are losing strength, as price fails to make significantly lower lows.
  • Indicates buyer accumulation, as price moves within a narrowing range.
  • A breakout above the wedge confirms the trend reversal, signalling a shift to bullish momentum.

Characteristics

  • Lower highs and lower lows, forming a contracting wedge pattern.
  • Trendlines slope downward, but price movement becomes less volatile.
  • Breakout occurs upward, typically accompanied by higher volume.

Market Condition

  • Found at the end of a downtrend, signalling that a bullish reversal is imminent.
  • More effective when confirmed by technical indicators like RSI divergence (showing weakening bearish momentum) or MACD crossover.

Trading Strategy

  • Entry point – Buy when price breaks above the upper trendline with strong volume.
  • Stop-loss – Below the last swing low to minimize risk.
  • Target price – Measure the wedge height (widest part of the pattern) and add it to the breakout level.
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