Falling Wedge: How to Recognize and Trade the Classic Bullish Pattern 📈

What Is a Falling Wedge and Why Is It Important for Traders

A falling wedge is one of the key technical analysis patterns that often signals an upcoming reversal to the upside. The pattern is formed by narrowing price movements between two descending support and resistance lines. When these lines converge, a characteristic shape appears, resembling a pointed wedge directed downward.

Structure and Main Signs of a Falling Wedge

To correctly identify a falling wedge on a chart, attention should be paid to several factors:

Price dynamics and volume compression. Inside the wedge, progressively lower highs and lows are formed, creating a sense of increasing market uncertainty. As the pattern develops, trading volume typically decreases, indicating a waning selling pressure.

Confirmed breakout. The true buy signal appears only when the candle closes above the upper boundary of the wedge with a noticeable increase in volume. This confirms that buyers are taking control of the price movement.

Practical Scheme for Opening a Position in a Falling Wedge

Proper trade management begins with a clear understanding of all components:

1. Entry point. Wait for the candle to close above the wedge’s upper resistance line. This is when the breakout is considered valid and there is potential for an upward move.

2. Capital protection. Set a stop-loss just below the last minimum formed inside the falling wedge. This provides a safe exit point if the market moves against the position.

3. Target levels. The first profit target is calculated by projecting the height of the wedge upward from the breakout point. The second target is the nearest horizontal resistance level that has already been formed historically on this asset.

What Increases the Reliability of a Falling Wedge Signal

Experienced traders know that for maximum success probability, additional confirmations should be sought. A decrease in volume during the formation of the wedge indicates exhaustion of selling pressure. When a breakout occurs with a sharp volume spike, it significantly increases the chances of a continued upward movement.

Remember, a falling wedge is just one tool in your trading arsenal. Combine it with other technical indicators and always follow risk management rules to protect your capital.

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