#FALLING WEDGE FORMATION HOW TO#

The fakeout scenario underscores the importance of placing stops in the right place – allowing some breathing room before the trade is potentially closed out. This is a fake breakout or “fakeout” and is a reality in the financial markets. In the Gold chart below, it is clear to see that price breaks out of the descending wedge to the upside only to return back down. Connecting the lower highs and lower lows will reveal the slight downward slant to the wedge pattern before price eventually rises, resulting in a falling wedge breakout to resume the larger uptrend.

The descending wedge pattern appears within an uptrend when price tends to consolidate, or trade in a more sideways fashion.

#FALLING WEDGE FORMATION HOW TO#

Get My Guide How to Trade the Falling Wedge Patternīelow are various ways to trade the falling wedge using technical analysis:

Look for break above resistance for a long entry.

Oversold signal can be confirmed by other technical tools like oscillators.

Look for divergence between price and an oscillator like the RSI or stochastic indicator.

The two lines will slope downwards and converge

Link lower highs and lower lows using a trend line.

A falling wedge is a continuation pattern if it appears in an uptrend and is a reversal pattern when it appears in a downtrend. The differentiating factor that separates the continuation and reversal pattern is the direction of the trend when the falling wedge appears. Both scenarios contain different market conditions which must be taken into consideration. The falling wedge pattern is interpreted as both a bullish continuation and bullish reversal pattern which gives rise to some confusion in the identification of the pattern.

Traders ought to know the differences between the rising and falling wedge patterns in order to identify and trade them effectively. The rising wedge pattern is the opposite of the falling wedge and is observed in down trending markets. It is considered a bullish chart formation but can indicate both reversal and continuation patterns – depending on where it appears in the trend. The falling wedge pattern is a continuation pattern formed when price bounces between two downward sloping, converging trendlines. 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. The falling wedge pattern (also known as the descending wedge) is a useful pattern that signals future bullish momentum.

Falling wedge formation