In this article, We learn about “Falling Wedge “.Let’s Go!
A The Falling Wedge is a chart pattern formed by drawing two descending trend lines, one representing a high and one representing a low.
It is classified as Bullish Reversalchart pattern.
The slope of the trend line
representing the highs, , is lower than the slope of the trend line representing the lows, indicating that the highs are falling faster than the lows.
It takes at least five reversals (two from one trendline and three from the other) to form a good falling wedge pattern.
The final shape forms a tapering wedge, hence the pattern’s name.
Because the trendline describing the falling wedge is falling, the falling wedge is sometimes mistakenly viewed as a continuation pattern of the overall downtrend.
The seemingly downward trend in price invites bearish traders to continue selling, while bullish traders continue to buy, thus maintaining a strong lower support line.
As the price refused to break through the support level below, the selling pressure gradually decreased, the resistance level above was broken, The price broke through and started a strong upward trend.
The
falling wedge should be considered a strong buy signal and indicates that the trend is about to reverse.
The falling wedge is the opposite of the rising wedge.
A falling wedge usually occurs after a climax trough (sometimes called a “panic”), a sudden reversal in an uptrend, usually on heavy volume.
In this case, the price within the falling wedge usually does not fall below the panic level and eventually breaks above the upper trendline.
Volume is most likely to decrease during pattern formation.
Better performance is expected in wedges with higher volume at the breakout point.
The
gap before a breakout is also said to improve performance.
In the rare case of a falling wedge following an uptrend, this pattern shows a gradual decline in price. In most cases, price will eventually break above the upper line, continuing the previous trend.
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