#Falling wedge pattern breakout how to

It notifies the restoration of the uptrend, which gives rise to possible buying opportunities. In an uptrend, a falling wedge is a continuation pattern that gives rise when the market contracts temporarily. Identifying the falling wedge pattern in an uptrend When the price makes lower highs and lower lows, it forms two contracting lines, which gives rise to this pattern.īuying opportunities: We can look for potential buying opportunities as the falling wedge usually precedes a reversal to the upside. In a downtrend, the falling wedge is known as a reversal pattern. 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.Identifying the falling wedge pattern in a downtrend 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. Just keep in mind though, that a retest of the breakout level might not always happen and result in a trader missing an entry. 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.

#Falling wedge pattern breakout how to

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.