Falling Wedge - Falling Wedge Pattern

Falling wedge patterns can be found in both uptrends and downtrends, but taking notice of the prevailing trend will help you determine whether the falling wedge signals a continuation pattern or a reversal pattern.  In both cases, falling wedge patterns are generally resolved to the upside.

Context:  Found within a downtrend, the falling wedge is often a reversal pattern.  When found within the context of an uptrend, the falling wedge is similar to a bull pennant and is a continuation pattern.  The example shown on this page is a falling wedge reversal pattern found at the end of a downtrend.

Appearance:  The falling wedge pattern is a contracting trading range with a downward tilt.  This may be seen by drawing two trend lines, a steeper trend line connecting minor highs, and a shallow trend line connecting minor lows.  The early portion of the wedge has a wider price range, while the latter stages of a falling wedge are characterized by tighter price action.  Volume expansion which accompanies a breakout from a falling wedge adds to the reliability of this chart pattern.

Breakout Expectation:  In the case of a continuation falling wedge, the widest portion of the wedge may be measured and added to the breakout level to determine the upside move which follows.  When a falling wedge is a reversal pattern, the widest portion of the wedge may be added to the breakout level to determine the upside move which follows.

This stock formed a falling wedge pattern during its downtrend which led to an upside reversal and a very reliable trading low.  Once the upper trend line was broken to the upside, the stock moved higher with ease.

Learn more about wedge patterns like the rising wedge pattern.

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