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. Rising Wedges that are large will give better performance than narrow wedges.The falling wedge pattern (also known as the descending wedge) is a useful pattern that signals future bullish momentum. Pullbacks will be harmful to the performance of the pattern.Ī break point is normally located around 60% of the length of the rising wedge. The risk of running a false bearish break out is quite low.Īn upward retracement is normally two times faster than the formation of the wedge. The more that the trend lines are sloped, the more the downward movement will be violent.įalse bearish breakouts provide an indication on the side of the exit because in only 3% of cases, when a bearish breakout occurs, the price will go out of the wedge by the top. Note the spacing between each contact point the lines must be important otherwise it could be a pennant. – In 53% of cases, a pullback arises on the resistance – In 63% of cases, the goal of the pattern is reached once the support is broken – In 55% of cases, the rising wedge shows a reversal pattern – In 82% of cases, there will be a downward exit. Take a look at some statistics about the rising wedge: The target price is given by the lowest point that resulted in the formation of the wedge.īelow is a graph representing a rising wedge: This movement then has almost no buying power which will indicate the willingness of a bearish reversal. Volumes will then be at their lowest and constantly decrease as the waves. Another wave will be formed thereafter but prices will increase less and less at the contact with the support. The second wave of increase will then occur, however with lower amplitude, which may appear the weakness of buyers. The lowest will be reached during the first correction on the resistance of the wedge and will form the support. This one is identified by a continuous reduction of the amplitude of the waves. The pattern indicates the shortness of buyers. These lines must be touched at least twice for validation. To validate rising wedge there must be oscillation between the two lines. A bearish reversal pattern formed by two assembled upward slants is called a rising wedge.
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