What is a Falling Wedge Pattern?

These price models with the predicted course of development were invented at the dawn of technical analysis when the trader’s only tools were the leaf, a simple pencil, and a ruler. But even today in the computer age graphic patterns do not lose their relevance. The reason for the formation of this figure of technical analysis can be explained by the behavior of sellers and buyers on the stock exchange. If there is a marked trend, bidders tend to take advantage of the most convenient price for opening a transaction. The activity of buyers or sellers increases, as their task is to have time to conclude an order before the trend reverses.

Externally, the model falls wedge, which is a kind of price spiral downward. This downward, undulating movement of the price is limited to two trend lines that intersect at the bottom. The upper line with a steeper downward slope is the resistance level and the lower one is the support level.

It is easy to construct a figure falling wedge. Draw one line through the most important peaks and the other along the large depressions.

They must intersect and have a downward slope. The number of reference points of vertices and depressions is important — if there are less than five, the pattern is unreliable. The signal is a break of one of the lines of the falling wedge pattern. If the price has crossed the top line the level of resistance indicates that the market is moving up shortly. Reversal signals in this model are more reliable than continuation signals. Conversely, the price crossing of the lower boundary of the figure signals the continuation of the downward trend. It is worth noting that more reliable signals are received from broad models, not from narrow ones. At one point or another, the power of players who have recently won decreases. This leads to the fact that the price makes a sharp long turn. It’s heading in the opposite direction to the previous trend.

Trading on a breakdown is the simplest and most efficient pattern of action based on the pattern. It does not require additional indicators and oscillators. The principle is based on the fact that this model of technical analysis is most often formed before the change of trend. The transaction is concluded in the direction opposite to the direction of the figure.