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A bullish reversal pattern with converging trendlines that can typically break upward. The breakout direction is determined by the preceding trend.
The Falling Wedge is a continuation pattern characterized by two converging trendlines - a falling resistance line (lower highs) and a rising support line (higher lows) that meet at an apex.
Unlike ascending or descending triangles which have a directional bias, falling wedges are neutral and typically break in the direction of the preceding trend. The pattern represents a period of indecision where buyers and sellers are equally matched.
The falling wedge represents perfect equilibrium. Bulls and bears are both gaining confidence in opposite directions - buyers are willing to pay more (higher lows), while sellers are willing to accept less (lower highs).
This compression creates tension. Both sides know a decision is coming as the apex approaches. The narrowing range means less and less room for price to move, and eventually one side must capitulate.
When the breakout comes, it's often violent because one side was *wrong*. The losing side exits rapidly while the winning side adds positions aggressively. This is why volume expansion on the breakout is critical.
Conservative: Wait for confirmed breakout with close outside triangle + volume.
Aggressive: Enter on breakout candle, or trade in direction of prior trend.
On the opposite side of the triangle - if long on upward breakout, stop below the rising support line.
Measured Move: Height of the triangle at its widest point, projected from breakout.
Typically 1:2 or better. Tighter triangles offer better R:R due to smaller stop distances.
The Falling Wedge can act as either a reversal or continuation pattern depending on where it forms. As a reversal, it appears after a downtrend. As a continuation, it forms as a pullback within an uptrend. In both cases, the converging trendlines and declining volume suggest selling pressure is drying up.
Always confirm this pattern with volume analysis and higher timeframe context. A pattern in isolation is just a shape - confluence with other factors is what creates high-probability setups.
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