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Falling Wedge Bullish Reversal Pattern Forex Trading-free forex trading signals and FX Forecast

• Bartholomew Kuma
• 0
• Posted on May 11, 2024March 10, 2025

The rising wedge is a bearish chart pattern found at the end of an upward trend in financial markets. It is the opposite of the bullish falling wedge pattern that occurs at the end of a downtrend. Traders recognize the rising wedge as a consolidation phase after a medium to… Wedges are the type of continuation as well as the reversal chart patterns. A rising wedge is formed by two converging trend lines when the stock’s prices have been rising for a certain period. A falling wedge is formed by two converging trend lines when the stock’s prices have been falling for a certain period.

• Although the illustrations above show more of a rounded retest, there are many times when the retest of the broken level will occur immediately following the break.
• These patterns can provide traders with information about the stock’s trend, momentum, and potential future direction.
• It is bullish if it forms in an uptrend and bearish if it forms in a downtrend.
• Notice how price action is forming new highs, but at a much slower pace than when price makes higher lows.

This is common in a market with immense selling pressure, where the bears take control the moment support is broken. The same holds true for a falling wedge, only this time we wait for the market to close above resistance and then watch for a retest of the level as new support. Lastly, when identifying a valid pattern to trade, it’s imperative that both sides of the wedge have three touches. In other words, the market needs to have tested support three times and resistance three times prior to breaking out. In this example, the falling wedge serves as a reversal signal. Just like the rising wedge, the falling wedge can either be a reversal or continuation signal.

How to trade a Rising Wedge classical pattern?

Although the illustrations above show more of a rounded retest, there are many times when the retest of the broken level will occur immediately following the break. Notice how all of the highs are in-line with one another just as the lows are in-line. If a trend line cannot be placed cleanly across both the highs and the lows of the pattern then it cannot be considered valid. A good upside target would be the height of the wedge formation. As you can see, the price came from a downtrend before consolidating and sketching higher highs and even higher lows. This should be placed below the bottom side of the falling wedge.

To qualify as a reversal pattern, a Falling Wedge should ideally form after an extended downtrend that’s at least three months old. The Falling Wedge pattern itself can form over a three to six-month period. Of course, we can use the same concept with the falling wedge where the swing highs become areas of potential resistance. Put simply, waiting for a retest of the broken level will give you a more favorable risk to reward ratio. We introduce people to the world of trading currencies, both fiat and crypto, through our non-drowsy educational content and tools. We’re also a community of traders that support each other on our daily trading journey.

What is the Falling Wedge?

Once you have identified this chart pattern in the stocks, you can trade accordingly as discussed above. Setting the stop loss a sufficient distance away allowed the market to eventually break through resistance (legitimately) and resume the long-term uptrend. Join thousands of traders who choose a mobile-first broker for trading the markets.

The first bar of the pattern is a bullish candlestick with a large real body within a well-defined uptrend. To wrap up this lesson, let’s take a look at a rising wedge that formed on EURUSD. The break of this wedge eventually lead to a massive loss of more than 3,000 pips for the most heavily-traded currency pair. In an ideal scenario, an extended downward trend with a definitive bottom should precede the wedge. The wedge pattern itself usually takes a quarter to half a year to form.

How to Trade Symmetrical Triangles- Winning Strategies

It is important to note, unlike all other chart patterns, valid falling wedge
patterns can be either continuation or reversal patterns. For ascending wedges, for instance, traders will mostly be mindful of a move above a former support point. 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.

Type (reversal or continuation), falling wedges are regarded as bullish
patterns. This means that the distance between where a trader would enter the trade and the price where they would open a stop-loss order is relatively tight. Here it can be very easy to get kicked out of the trade for minimum loss, but if the stock moves to the benefit of the trader, it can lead to an excellent return.

quiz: Understanding bearish rectangle

It is formed when the prices are making Higher Highs and Higher Lows compared to the previous price movements. Though, while ascending wedges lead to bearish moves, downward ones lead to bullish moves. They can offer an invaluable early warning sign of a price reversal or continuation. Knowing how and why the falling wedge pattern forms are essential to learning how to trade it.

The illustration below shows the characteristics of a falling wedge. The answer to this question lies within the events leading up to the formation of the wedge. Along those lines, if you see the stock struggling on elevated volume, it could be a good indication of distribution. If the first trade was not successful you have to wait patiently to get another signal and enter your trade without hesitation. The advantage with a retest is, that it gives you further confirmation, as long as there is another sell signal.

Wedge Pattern – Reversal and Continuation

Thus, we expect a price breakout from the wedge to the upside. A wedge is a price pattern marked by converging trend lines on a price chart. The two trend lines are drawn to connect the respective highs and lows of a price series over the course of 10 to 50 periods. The lines show that the highs and the lows are either rising or falling at differing rates, giving the appearance of a wedge as the lines approach a convergence.