A look at on-chain metrics reveals why sideways movement is predominant and that a sharp move in BTC is likely to arrive soon. The Dollar Index finished the first full week of October eking out marginal losses, falling -0.1% and snapping an 11-week winning streak. The Bullish Bears team focuses on keeping things as simple as possible in our online trading courses and chat rooms.

The price action trades higher, however the buyers lose the momentum at one point and the bears take temporary control over the price action. The second phase is when the consolidation phase starts, which takes the price action lower. It’s important to note a difference between a descending channel and falling wedge. In a channel, the price action creates a series of the lower highs and lower lows while in the descending wedge we have the lower highs as well but the lows are printed at higher prices. For this reason, we have two trend lines that are not running in parallel.

Rising Wedges in Downtrend

A rising wedge pattern is a chart pattern that appears when the market produces highs and higher lows while also narrowing its range. The narrowing of the range suggests that the uptrend is getting weaker, hence this pattern is deemed a reversal pattern when it appears in an uptrend. Falling wedge patterns are bigger overall patterns that form a big bearish move to the downside. They form by connecting 2-3 points on both support and resistance levels. Look for a retest of the wedge after breakout and if it holds then you’ll have bullish confirmation. The trend lines drawn above and below the price chart pattern can converge to help a trader or analyst anticipate a breakout reversal.

The price target is equal to the height of the back of the wedge. The falling wedge pattern is a technical formation that signals the end of the consolidation phase that facilitated a pull back lower. As outlined earlier, falling wedges can be both a reversal and continuation pattern. In essence, both continuation and reversal scenarios are inherently bullish. As such, the falling wedge can be explained as the “calm before the storm”.

Types of Wedge Pattern

Conservative traders, on the other hand, will generally wait for price to retest the upper resistance line from above before they will execute a long trade. Just keep in mind though, that a retest of the breakout level might not always happen and result in a trader missing an entry. Another notable characteristic of a falling wedge is that the upper resistance line tends to have a steeper descending angle than the lower support line. It involves recognizing lower highs and lower lows while a security is in a downtrend. The aim is to identify a slowdown in the rate at which prices drop, suggesting a potential shift in trend direction. It’s also critical to wait for prices to break through the upper resistance line of the pattern and to validate this bullish signal with other technical analysis tools before deciding to buy.

• This is a fake breakout or “fakeout” and is a reality in the financial markets.
• The more shallow the lows; the more of a decrease in selling pressure there is.
• To design a wedge trading strategy, you need to determine when to open your position, when to take profit and when to cut your losses.
• Knowing how and why the falling wedge pattern forms are essential to learning how to trade it.
• Trade up today – join thousands of traders who choose a mobile-first broker.
• When lower highs and lower lows form, as in a falling wedge, the security is trending lower.

Falling wedge patterns always
begin when a darling stock has fallen from favor. The result is what technical traders call a watershed decline — a near vertical drop in huge volume. The rising wedge in an uptrend indicates a reversal of the downtrend. It is formed when the prices are making Higher Highs and Higher Lows compared to the previous price movements. Channel Down and Falling Wedge patterns are common trend reversal patterns that often appear during downtrends characterized by lower highs and lower lows. These patterns indicate a period of consolidation and uncertainty in the market, as sellers dominate.

Trading the Falling Wedge Pattern

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. Both scenarios contain different market conditions which must be taken into consideration. The most common reversal pattern is the rising and falling wedge, which typically occurs at the end of a trend. The pattern consists of two trendiness which contract price leading to an apex and then a breakout appears.

The Falling Wedge is a bullish pattern that begins wide at the top and contracts as prices move lower. In contrast to symmetrical triangles, which have no definitive slope and no bias, falling wedges definitely slope down and have a bullish bias. However, this bullish bias can only be realized once a resistance breakout occurs. Technically, a falling wedge pattern is formed when two converging trend lines of a consistently falling stock are joined. It starts wide at the top and converges as the price moves lower, forming a cone as the lower highs and lower lows converge.

This is What a Down Trend Looks Like

Once the pattern has completed it breaks out of the wedge, usually in the opposite direction. The bullish bias of a falling wedge cannot be confirmed until a breakout. One benefit of trading any breakout is that it has to be clear when a potential move is made invalid – and trading wedges is no different. You can place a stop-loss above the previous support level, and if that support fails to turn into a new level of resistance, you can close your trade. Though, while ascending wedges lead to bearish moves, downward ones lead to bullish moves.

Some of the most indispensable long-term chart patterns to know are the falling and rising wedge patterns. They will give you a competitive advantage over other traders and investors in the market, while also bringing in more money to your account if you use them properly. This breakout event is expected to reverse the price movement and trend higher. A falling wedge pattern consists of multiple candlesticks that form a big sloping wedge.

Tools to Spot Trend Reversals in Stocks

On the other hand, you can apply the general rule that support turns into resistance in a breakout, meaning the market may bounce off previous support levels on its way down. Due to this, you can wait for a breakout to start, then wait for it to return and bounce off the previous support area in the ascending wedge. When a stock or index price move has fallen over time, it can create a wedge pattern as the chart begins to converge on the way down. Traders can look to the beginning of the descending wedge pattern and measure the peak to trough distance between support and resistance to spot the pattern. Usually, a rising wedge pattern is bearish, indicating that a stock that has been on the rise is on the verge of having a breakout reversal, and therefore likely to slide.