Falling Wedge Pattern

Falling wedge

Identifying the falling wedge pattern in an downtrend

In a downtrend, the falling wedge is known as a reversal pattern.

When the price makes lower highs and lower lows, it forms two contracting lines which gives rise to this pattern.

Buying opportunities: We can look for potential buying opportunities as the falling wedge usually precedes a reversal to the upside.

Identifying the falling wedge pattern in an uptrend

In an uptrend, a falling wedge is known as a continuation pattern that gives rise when the market contracts temporarily.

It notifies the restoration of the uptrend which gives rise to possible buying opportunities.

Trading Advantages for Wedge Patterns

A wedge chart pattern is among the most widely occurring chart patterns. It can be seen in various trading instruments such as stocks, currency pairs, futures, options, and more when a security trades sideways and then begins to trend downward after a support level is broken. This pattern is a falling wedge because it looks like an inverted V on a chart. There are two main advantages of falling wedge pattern trading. Its smooth and continuous shape makes it less likely to show reversals at a sizeable relative scale. The descending wedge pattern trend shows much more clearly, which is convenient for us to set risk control and trade strategy. And it seems that the falling wedge pattern has a relatively considerable bullish/bearish pressure, so falling wedges with a longer duration tend to generate larger targets.

Descending broadening wedge patterns has a few main advantages over other reversal patterns. These include. The downward breakout is one of the most reliable, creating big price downtrends. The reaction low occurs in most trades within 2 to 3 days after the price breaks out. Though it may take weeks or months for a reversal to happen, many reversals are so significant that they generate trading opportunities.

How To Identify A Falling Wedge Pattern

A falling wedge chart pattern is known as a continuation and reversal pattern. The easiest way to spot a falling or descending wedge pattern is by looking for two converging trend lines that have been forming over time. Each time these trend lines converge, they form what is known as a wedge that gives rise to its name. One could use a falling wedge pattern as an indicator or confirmation tool when entering trades in bearish markets where you may find yourself using indicators such as support levels or momentum oscillators in conjunction with this trading method. When executed correctly, a descending wedge pattern can provide you with decent returns if done so during trending periods.

Practice session:

Exercise 1: Identify the falling wedge in a downtrend. Show exercise

The chart below depicts an illustration of a falling wedges in a downtrend:


Enrich Broking: Descending Wedge Pattern

Practice session

Exercise 2: Identify the falling wedge in an uptrend . Show exercise

Trading the falling wedge: Technique 1

Enter the market by placing a buy order (long entry) on the break of the top side of the wedge.

Avoid false breakouts by waiting for the candle to close above the top trend line and then enter.

The chart below depicts the buy order and the area where the price has broken the upper trend line of the wedge:


Enrich Broking: Falling Wedge Pattern

1 -Long entry

Number 1: Area where price has broken the upper trend line of the wedge

2 -Stop loss, below bottom of the wedge (The chart below depicts that the stop loss should be placed below the bottom side of the falling wedge.)

The profit target is measured by taking the height of the back of the wedge and by extending that distance up from trend line breakout.

Number 2: Back of the wedge

Number 3: Distance from entry (buy order) to Target Point-3 (this is the same height as the back of the wedge number 2)

Target Point-3 Take profit

Practice session:

Technique 1:

Exercise 3: Where would you place the entry, stop loss and take profit? Show exercise

Trading the falling wedge: Technique 2

Wait for the price to trade above the trend line (broken resistance ), as in the first illustration.


Enrich Broking: Wedge Chart Pattern

Place a buy order on the retest of the trend line (broken resistance now becomes support).

Number 1: The price finds support at the upper side of the falling wedge

1 -Long entry

Number 1: The price finds support at the upper side of the falling wedge

Number 2: Back of the wedge

Number 3: Distance from entry (buy order) to take profit tp3 (this is the same height as the back of the wedge number 2)

The chart below depicts that the stop loss would go below the new support area.

Profit Target:

Place a buy order on the retest of the trend line (broken resistance now becomes support).

The chart below depicts the profit target.

Similar to technique 1, the measurement is done by taking the height of the back of the wedge and by extending that distance up from the entry:

Practice session

Technique 2

Exercise 4: Where would you place the entry, stop loss and take profit? Show exercise

Nut Shell

An overview of the lesson discussed so far….

The falling wedge pattern signals a possible buying opportunity either after a downtrend or during an existing uptrend .

The entry (buy order) is placed when the price breaks above the top side of the wedge or when the price finds support at the upper trend line.

The stop loss is placed below the back of the wedge.

The take profit target is measured by taking the height of the back of the wedge and by extending that distance up from the trend line breakout.

Frequently Asked Questions

Peak Margin-Enrich

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You can make profits by following a few tips when opting for falling wedge pattern trading.

While you wait for a breakout or break down, you can trade volatility to profit on a falling wedge pattern. You buy calls or put spreads when you think a bounce is coming and place a vertical call spread when you believe security will continue to fall. The profit on a descending wedge chart pattern is mainly made during temporary bounces as traders take profits, then again at resistance if we are in an uptrend. There’s often not enough time left in a falling wedge pattern to make up for getting caught the wrong side up before breaking out of the pattern. For that reason, it’s essential to be very careful and mindful of your position sizes.

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A Wedge chart pattern can act as both a continuation pattern and a reversal pattern. It’s a continuation pattern near support or resistance. The price tends to pause for consolidation before resuming its direction but can reverse near-critical technical levels by extending too far from help or resistance.

Descending wedge patterns is bearish reversal patterns that occur at market tops and bottoms but require a bit of context to understand why. The pattern is bullish if it forms after an extended advance in a strong uptrend, while it’s considered bearish when it occurs on a vast decline in a downtrend. Falling wedge chart patterns only form at significant price levels. They also take time to develop and involve relatively tight trading ranges, with volume tapering as prices move lower or higher, often along moving averages.

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A falling wedge pattern is a bearish trend-reversal pattern, meaning it’s used when an upward trend turns downward. The pattern can be identified by a series of lower highs and lower lows, where each common is below or near the previous low. As with most trend reversal formations, the price will eventually break out of either above or below its structure in case of a falling wedge pattern. The best way to use falling wedge pattern trading is by taking a long position near support or using it as an opportunity to enter long posts with good risk-reward ratios.

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The best time to do a falling wedge pattern trading is when prices are above your ideal entry point. If price action is forming a falling wedge pattern, place a pending order for at least 50 percent of your desired position size just above (or below) where you think it will end up once a breakout occurs. Once price hits that trigger point, it confirms that an uptrend/downtrend reversal has taken place and allows you to maximize gains on both sides of these trades. You can often buy a small amount after analyzing the falling wedge pattern, then add to your position if you see higher highs created during an uptrend or lower lows form during a downtrend. This limits losses in case any early price movements go against you.

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Just like a falling knife, a falling wedge pattern tends to imply that the price is in a downtrend. However, as traders quickly point out when it comes to a falling wedge pattern breakout from patterns like falling wedges, it’s more important to focus on how price acts during trend continuation scenarios than trend reversals. That’s because such strategies don’t rely on psychological influences and are based solely on price action and technical analysis when you begin falling wedge pattern trading. Most people consider a falling wedge pattern breakout from a falling wedge pattern to be confirmation of an established downtrend.

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