The price retreats and the market enters a consolidation period. It usually happens when, after a substantial rally, bulls are exhausted and bears take temporary control. The market is in the accumulation stage before the breakout occurs.Ī falling wedge pattern may appear in an uptrend as well. The support line moves down at a much lower speed than the resistance line, since big institutional players and smart money traders start buying large portions of shares on each new low. Technical indicators from strongly oversold and overbought areas make higher highs on each new lower low, showing bullish divergence. The price is moving in a range between support and resistance lines. Buyers and sellers are exhausted and not willing or able to significantly move the price toward the upside or downside. In case the price moves below the support line, it becomes a new resistance line and might be retested as well.Ī falling wedge pattern is usually formed at the end of a previous downtrend when supply and demand reach a balance. As a bullish pattern, when a falling wedge appears in a rising trend, it is considered as a continuation signal.Īfter the breakout, when the price moves above the resistance line, it becomes a new support line and the price often retests the former resistance line before moving up toward the price target. In a rising trend, a falling wedge pattern may appear after a temporary price retreat. Considering technical indicators, chart patterns, and support and resistance levels in the bigger time frame is extremely important. Moving averages, Relative Strength Index (RSI), MACD, bullish divergence, and Fibonacci retracement techniques are very helpful in analyzing the falling wedge pattern behavior. The pattern is an inversion of the rising wedge pattern.Ī falling wedge pattern is considered a bullish signal with a higher probability of an upward breakout, but traders usually watch other technical indicators to confirm the breakout direction. The converging falling support and resistance lines form a downward-pointing triangle. The highs and lows of the pattern are moving lower, but the highs are moving down at a noticeably higher speed. The connected lows of the formation represent a support trend line, while the connected highs of the pattern present a resistance line. In a rising trend, the falling wedge is usually considered a continuation pattern. The pattern often appears in a downtrend as a signal of an upcoming trend reversal. A falling wedge, also known as the descending wedge, is usually considered a bullish pattern.
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