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.