The pattern should have at least two test of both the upper resistance trendline and the lower support trendline. This indicates that selling pressure is drying up as sellers are not able to push the price down as effectively as before. The Falling Wedge is bound by two trendlines that have a downward slope with the upper trendline (the resistance line) having a more acute slope, or a steeper slope, than the lower trendline (the support line). The Falling Wedge PatternĪ Falling Wedge is a bullish pattern though the price action in the wedge itself would be bearish. In Elliot Wave theory, however, the wedge must be in the direction of the preceding trend, the motive wave, and cannot be corrective or reactionary. Wedge patterns are also part of the Elliott Wave Principle where they are seen as diagonal triangles. Volume is an important characteristic of a Wedge and should decrease during the formation of the Wedge and increase on the breakout. At least five pivot points (peaks or valleys) are required to form a wedge, with three pivots on the one trendline and two on the other.

They, unlike the symmetrical triangle, are slanted either to the upside, making it a Rising Wedge, or to the downside, making it a Falling Wedge. The Wedge pattern is similar to the symmetrical triangle as they too have converging trend lines that meet at an apex. The pattern itself does not mark the reversal of the preceding trend the breakout from the pattern marks the reversal of the trend formed within the Wedge pattern. Similarly, a Falling Wedge is often preceded by an uptrend but it can also be found in a downtrend.

It is important to note that while the Rising Wedge is often preceded by a downtrend, it can also be found in an uptrend. In either case, the breakout is often in the opposite direction of the trend that forms in the wedge itself.

Learn more about wedge patterns like the rising wedge pattern.The Wedge formations are reversal patterns that can appear bullish, in the case of a Rising Wedge, or bearish, in the case of a Falling Wedge. Once the upper trend line was broken to the upside, the stock moved higher with ease.įalling wedge patterns are reliable signals we like to trade from, so we point them out to members of our stock pick service whenever they’re found on the charts. This stock formed a falling wedge pattern during its downtrend which led to an upside reversal and a very reliable trading low. When a falling wedge is a reversal pattern, the widest portion of the wedge may be added to the breakout level to determine the upside move which follows. Volume expansion which accompanies a breakout from a falling wedge adds to the reliability of this chart pattern.īreakout Expectation: In the case of a continuation falling wedge, the widest portion of the wedge may be measured and added to the breakout level to determine the upside move which follows. The early portion of the wedge has a wider price range, while the latter stages of a falling wedge are characterized by tighter price action. This may be seen by drawing two trend lines, a steeper trend line connecting minor highs, and a shallow trend line connecting minor lows. The example shown on this page is a falling wedge reversal pattern found at the end of a downtrend.Īppearance: The falling wedge pattern is a contracting trading range with a downward tilt. When found within the context of an uptrend, the falling wedge is similar to a bull pennant and is a continuation pattern. In both cases, falling wedge patterns are generally resolved to the upside.Ĭontext: Found within a downtrend, the falling wedge is often a reversal pattern.

Falling wedge patterns can be found in both uptrends and downtrends, but taking notice of the prevailing trend will help you determine whether the falling wedge signals a continuation pattern or a reversal pattern.

Falling wedge indicator