The falling wedge is a bullish pattern, whether it forms after an established downtrend or during an uptrend, so the next time you spot this pattern on your favorite market exercise caution if you are holding a short position or prepare for an opportunity to get long. A target could again have been placed at the level where the rising wedge started from with a stop loss below the final lower low.Īlways make sure that your potential reward is larger than the risk you are taking on and if your stop loss ends up being too far away, then consider placing your stop below a previous swing long that was formed on the way up before the resistance line was broken. That being said, there was additional confirmation that this falling wedge was about to end when the MACD-Histogram started picking up momentum divergence between the lower lows at the support line.Īlso note how momentum increased dramatically once price broke above the resistance line, which signaled an end to the pattern. This is a great example where conservative traders would not have had an opportunity to enter if they waited for a retest of the breakout level. My final chart shows the same falling wedge in Gold that led to a trend continuation when it ended. This occurrence does not necessarily always happen but is another confirmation signal to look out for since the MACD-Histogram also showed a wedge-like formation. Note that the example above also shows a decline in the MACD-Histogram’s peaks before the patter ends. Once this pattern ends there will usually be an increase in momentum once price breaks above the resistance line. Traders Tip: When you are following a falling wedge in real-time, it can be a good idea to watch for momentum divergence on a MACD-Histogram between the lower lows, and use it as an additional confirmation method that a falling wedge might be nearing an end. The ideal place to set a target will be at the upper level where the falling wedge started from, with a stop loss a few pips below the final low before the breakout occurred. Being a consolidation in a bull market, the average rise is a very high 46. In the descending broadening wedge formation, the volume tends to increase over time but with falling wedges, it decreases. Just keep in mind though, that a retest of the breakout level might not always happen and result in a trader missing an entry. The volume pattern is also different from falling wedges. 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. Click to view the visual candlestick index to make identification easier.Practice This Strategy How to Trade the Falling Wedge Patternīecause the falling wedge is a bullish chart pattern, aggressive traders will typically wait for price to break above the upper resistance line before they will execute a long position.If you prefer candlesticks, then visit over 100 of them in the alphabetical index.The alphabetical chart pattern index covers more topics than the visual index.Visit the visual chart pattern index to hunt for other chart patterns.A broadening wedge may also be a three rising valleys chart pattern.Take this slider quiz on ascending broadening wedges.Pattern pairs trading: ascending broadening wedges.Occur (because it is after the breakout), but it sure looks pretty on the chart. Technically, that means a partial decline did not This wedge is that a partial decline occurs after the breakout. The above figure shows an example of the ascending broadening wedge chart pattern. Continuations also work bestįor those, but only by one percentage point: 13% (for continuations) versus 12% (for reversals). For those which breakout downward, 81% of those act as reversals of the prevailing price trend. Reversals with gains averaging 42% versus 35%, respectively. These links for throwbacks and pullbacks discuss performance.įor the patterns which breakout upward, 81% of them act as continuations of the prevailing price trend. The links on the left define throwbacks and pullbacks. Throwbacks and pullbacks hurt post breakout performance. The link on the left provides statistics (probably outdated) and this link gives Performance improves when the breakout is within a third of the yearly high. Downward breakoutsĭo better with a short-term move (less than 3 months) leading to the pattern.ĭownward breakouts perform best when the breakout is within a third of the yearly low. For upward breakouts, the best performing patterns are those with an intermediate-term (between 3 and 6 months) move leading to the pattern.
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