A falling wedge is a contracting pattern that can appear in both downtrends and uptrends.
It most often signals upward movement and is used to identify buying opportunities.
How to Identify a Falling Wedge
Price forms lower highs and lower lows.
Trendlines converge — the pattern narrows.
Often precedes:
Reversal upward in a downtrend.
Continuation upward in an uptrend.
Types of Falling Wedge
In a downtrend: reversal pattern (often predicts a trend change to bullish).
In an uptrend: continuation pattern (signals further growth).
How to Trade the Falling Wedge
Method 1: Aggressive
Entry: after the price breaks above the upper trendline (ideally wait for a candle close).
Stop-loss: below the lower boundary of the wedge.
Take-profit: measure the height of the wedge’s base and project it upward from the breakout point.
Method 2: Conservative
Wait for a breakout and retest of the broken trendline (previous resistance becomes support).
Entry: after the retest confirms the new support.
Stop-loss: below the new support level.
Take-profit: same as Method 1 (height of the wedge).
Key Features
The longer the wedge forms, the stronger the breakout is likely to be.
Volume: usually decreases inside the wedge and spikes during the breakout.
Combine with additional indicators (RSI, MACD) for confirmation.
Conclusion:
The falling wedge is a strong bullish setup, especially when confirmed by volume and other indicators. It offers clear entry points and helps traders position for potential trend reversals or continuations.