The fakeout scenario underscores the importance of placing stops in the right place – allowing some breathing room before the trade is potentially closed out. Traders can place a stop below the lowest traded price in the wedge or even below the wedge itself. The falling wedge pattern (also known as the descending wedge) is a useful pattern that signals future bullish momentum. This article provides a technical approach to trading the falling wedge, using forex and gold examples, and highlights key points to keep in mind when trading this pattern.

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Falling Wedge – Falling Wedge Pattern

Paying attention to volume figures is really important at this stage. The continuous trend of a decreasing volume is significant as it tells us that the buyers, who are still in control despite the pull back, are not investing much resources yet. Harness past market data to forecast price direction and anticipate market moves.

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Identifying the falling wedge pattern in a downtrend

In both cases, falling wedge patterns are generally resolved to the upside. A falling wedge pattern consists of multiple candlesticks that form a big sloping wedge. It is a bearish candlestick pattern that turns bullish when price breaks out of wedge.

Confirm the move before opening your position because not all wedges will end in a breakout. Volume is an essential ingredient in confirming a Falling Wedge breakout because it demonstrates market conviction behind the price movement. Without volume expansion, the breakout may lack conviction and be susceptible to failure. FCX provides a textbook example of a falling wedge at the end of a long downtrend. For a pattern to be considered a falling wedge, the following characteristics must be met.

What is the Falling Wedge pattern?

Price breaking out point creates another difference from the triangle. Falling and rising wedges are a small part of intermediate or major trend. As they are reserved for minor trends, they are not considered to be major patterns.

It involves recognizing lower highs and lower lows while a security is in a downtrend. The aim is to identify a slowdown in the rate at which prices drop, suggesting a potential shift in trend direction. Both of the boundary lines of a rising wedge pattern slope up from the left to the right. The bottom line climbs at a sharper angle as compared to the top one, despite the fact that they both head in the same exact direction, thereby leading to convergence. After passing through the bottom boundary line, prices normally fall. For example, Bitcoin started forming a falling wedge pattern after it surged to almost $14k in June of 2019.

The Falling Wedge Pattern Explained

These products may not be suitable for everyone, and it is crucial that you fully comprehend the risks involved. Prior to making any decisions, carefully assess your financial situation and determine whether you can afford the potential risk of losing your money. My final chart shows the same falling wedge in Gold that led to a trend continuation when it ended. This is a great example where conservative traders would not have had an opportunity to enter if they waited for a retest of the breakout level.

• Confirm the move before opening your position because not all wedges will end in a breakout.
• It is more likely for the prices to drift laterally and saucer-out as they exit the precise boundary lines of the falling wedge pattern before resuming the primary trend.
• Traders can look to the starting point of the descending wedge pattern and measure the vertical distance between support and resistance.
• Regardless, the falling wedge pattern,  much like the rising wedge pattern, is a useful chart pattern that occurs frequently in any financial instrument and in any timeframe.
• When this happens, it’s certainly easier to identify the pattern and enter a position in the other direction with a stop-loss order.

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quiz: Understanding Gartley pattern

Look for a retest of the wedge after breakout and if it holds then you’ll have bullish confirmation. Regardless, the falling wedge pattern,  much like the rising wedge pattern, is a useful chart pattern that occurs frequently in any financial instrument and in any timeframe. Forex traders often interpret the pattern as a slowing momentum indicator and a price consolidation mode. A wedge pattern is considered to be a pattern which is forming at the top or bottom of the trend.