However, note that the general rule that support can convert into resistance during a breakout also applies here. Traders should especially be concerned if the rising wedge moves upwards a past support level. Following a breakthrough, a spike in volume is a solid sign that a bigger move is on the way. Typically, you should be aiming for a significant move beyond the support line if it’s a rising wedge or a move beyond the resistance trend line if it’s a falling wedge.Īnother indicator of a wedge being near a breakout is falling volume as the market consolidates. Find the resistance point’s break (it will indicate entry into the market).Įven though the breakout is one of the ways of verifying the move, not all wedges result in a breakout.Identify the divergence between the price and an oscillator.Connect the lower highs with the lower lows with the help of a trend line (it will show convergence and create a downward slope).Identify whether there is an uptrend or a downtrend.To spot a falling wedge you should follow these steps: Thus, a falling wedge is a key technical pattern that indicates that the adjustment or consolidation has just occurred, as the asset's price has left the wedge to the upside and the broader trend is continuing.

This means the price moves outside the drawn wedge pattern. Draw trendlines along the swing highs and the swing lows to highlight the pattern. So, it’s like a signal that warns buyers that they should reorganize and attract new buying interests in order to push the price action higher. Here are some general strategy steps for trading a wedge pattern. Different market conditions must be taken into consideration in both instances.Ī falling wedge marks the end of the period of consolidation. If the falling wedge appears downtrend – it’s a reversal pattern, if it appears uptrend – it’s a continuation pattern. A breakout across the upper trend line precedes it.ĭepending on where a falling wedge appears on the price chart, it can be understood as a continuation or reversal formation on the trendline.As the trend line advances, the volume decreases.The falling wedge has the following key aspects: If the resistance and support lines are pointing down, it could also be indicated as a falling wedge. The resistance line's slope must be greater than the support line's. The price action forms a downward-sloping cone as the reaction highs and lows merge.Ī falling wedge pattern forms when a market becomes centered between two intertwined resistance and support lines. It starts broad at the top and then narrows as the price drops. The falling wedge pattern is a continuation pattern formed when price bounces between two downward sloping, converging trendlines. The falling wedge (descending wedge) pattern is a significant trend that predicts an upward trend in the future.

Falling wedge pattern meaning