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.