To do so, some of the most common and useful trend reversal indicators include the Relative Strength Index (RSI), moving averages, MACD, and Fibonacci retracement levels. Still, because there’s confusion in identifying falling wedges, it is advisable to use other technical indicators in order to confirm the trend reversal. When this happens, it’s certainly easier to identify the pattern and enter a position in the other direction with a stop-loss order. Typically, the falling wedge pattern comes at the end of a downtrend where the previous trend makes its final move. Nonetheless, regardless of the market condition, you always need to find the same pattern formation and follow the same rules when using this pattern to predict future price movements.īelow we are going to show you the two ways in which you can find the falling wedge pattern. Or, in other words, it may indicate a trend reversal or trend continuation. Set a stop-loss order at the same resistance trend lineĪs we previously discussed, the falling wedge pattern can be formed after a prolonged downtrend or during a trend.Place a buying order once the falling wedge appears and the price break above the resistance trend line.Wait for a price consolidation and the contraction of support and resistance lines.Draw two trend lines – the bottom support line and upper resistance line.Identify an existing downward trend or a long bullish trend in a currency pair.Taking the above into consideration, there are several steps you need to follow in order to identify and use the falling wedge pattern: As you can see, the falling wedge pattern is formed at the end of the downtrend with three lower highs and two lower lows, and most importantly, a price consolidation at the end of the downward trend.Īs soon as the price breaks above the resistance trend line, an entry point is signaled and the trader will take a long buying position. Then, you need to identify two lower highs and two (or three) lower lows.įor example, let’s take a look at the USD/JPY 30-min chart. To identify a falling wedge pattern, the first thing you need to find is a price consolidation after a downward trend. How to Identify and Use the Falling Wedge Pattern? When the falling wedge breakout indeed occurs, there’s a buying opportunity and a sign of a potential trend reversal. Traders often interpret the pattern as a slowing momentum indicator and a price consolidation mode. Regardless, the falling wedge pattern, much like the rising wedge pattern, is a useful chart pattern that occurs frequently in any financial instrument and in any timeframe. In the vast majority of cases, the pattern appears after a downtrend and is considered a trend reversal pattern, however, in some cases, it can also be found within a trend and can be interpreted as a continuation pattern. The falling wedge pattern is a bullish trend reversal chart pattern that signals the end of the previous trend and the beginning of an upward trend. The falling wedge pattern – Pros and cons.How to trade the falling wedge pattern?.
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