A trade should be initiated after the retest of the top trend line. According to strategy 2, one should wait for the price to trade above the resistance. ![]() The top trend line can be called as a resistance in the chart. That much distance should be extended on the chart after the breakout of the top trend line. ![]() The height of the back of the wedge should be measured. Target should be set in the following manner. Stop-loss should be fixed at the bottom price of the lower trend line. In figure 1, according to strategy 1, a trader should have taken a long position when the breakout had happened. One should wait for the closing of the security price to occur above the top trend line. Before taking a trade, one should make sure that it is not a false breakout. The first strategy suggests taking a long position when the price breaks the top side of the wedge. There are two strategies of trading using the falling wedge pattern. Taking a long position after spotting this pattern would also have given very good returns just in a very small period of time. This means the continuation of the existing trend. This pattern has been followed by an increase in prices. In this technical chart, it is clearly visible how a falling wedge pattern is being formed by the price movement of the currency pair. Hence, this also forms an opportunity to take long positions in the market. This shows the contraction of the markets temporarily. ![]() It is also formed when the price of the security makes lower highs and lower lows in comparison to the previous price movements in the given time period. When a falling wedge pattern is spotted in an uptrend on a chart, it signifies a continuation of the existing downtrend. It implies a continuation of the Existing Trend. Taking a long position after spotting this pattern would have given very good returns just in a very small period of time. This pattern has been followed by an uptrend. This can be seen in the below picture taken from currency markets: Hence, this forms an opportunity to take long positions in the market. This pattern is usually followed by a reversal in the downtrend to the upside. It is formed when the price of the security makes lower highs and lower lows in comparison to the previous price movements in the given time period. When a falling wedge pattern is spotted in a downtrend on a chart, it signifies a reversal in the existing uptrend. It implies a reversal of the Pattern and Beginning of the New Trend. The picture posted below shows all the aspects of a falling wedge pattern:ĭepending on the location of the falling wedge pattern on a chart, it can signify two things which have been discussed below: Falling Wedge Pattern in Downtrend: A breakout of price from the upper trend line.With the progression of prices, volumes traded show a decline in numbers.The presence of two converging trend lines.This can result in the security price breaking above the upper trend line.Ī falling wedge pattern can be recognized by 3 things: Before the lines converge, buyers start coming in the market and as a result of this, the decline in prices starts to lose momentum. In this article, let us discuss the falling wedge pattern in particular.Ī falling wedge pattern is formed by the two converging trend lines when the price of a security has been falling over a certain time period. These wedge lines indicate bullish or bearish trend reversals. These two lines or trend lines show a rise or fall and look like a wedge. All the highs and lows over a 10 to 50 trading periods are joined by two lines in a price series. Well, in the simplest terms, A wedge is nothing but a pattern of prices that are marked by multiple converging trend lines on a stock price chart. In order to understand the falling wedge pattern, let us first try to understand what a wedge means. This article will talk about how to identify trading opportunities using this pattern and make use of them in order to increase one’s wealth. It is also termed as the descending wedge pattern by traders. ![]() A falling wedge pattern signals a bullish reversal in prices of the securities. Falling Wedge Pattern is one of the tools used by traders who use technical analysis of stocks to take positions in equity and currency markets.
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