In this article, we will be studying the topic “What Is a Falling Wedge?“. Also, we will look at the topic’s relationship with, lower highs, lower lows, trend lines, slope, etc.
The presence of a falling wedge pattern shows that a bull run will occur later. The structure of this falling wedge is wide at its peak, due to future fall in price its base will become narrow. The price action will form a downward conical shape as the highs and lows meet each other.
The slope of the line at the bottom must be smaller than the line at the top. The falling wedge pattern forms once the point of concentration is within the two merging bottom and top lines. It also forms when the both lines moves in a downward direction.
The Major Features Of The Falling wedge
- The trend lines are convergent in nature.
- The volume reduces as its trend line progresses.
- A breakout across the higher trend line indicates a falling wedge.
It can also mean a continuation or reversal formation on the trend line. It depends on their position on the price chart. However, both continuation and reversal adopt separate market situations and we must consider that.
The direction of the falling wedge shows the difference between continuation and reversal formation on the trend line. It is a continuation formation when the direction is upward. In contrast, it is a reversal formation when the direction is downwards.
It alerts the buyer to arrange themselves in such a way that will catch the attention of new buyers. This will further overcome sellers and increase the price action as well. It marks the final destination of the integration period. Due to this fact, we should see it as something that keeps traders in suspense.
A falling wedge is a very necessary feature that shows that an adjustment, or combination has been made. An uptrend follows and continues moving further in the same direction.
Detection of a Falling Wedge Pattern
Firstly, we check the presence of bull or bear run respectively. After that, we will use a trend line to link the lower highs and lower lows. The lines will show downtrend of the slope and point of intersection. You will also detect the separation of the price from an oscillator. Extra tools with special features will be available when you want check where the assets are oversold. In conclusion, an indication when one should enter the market is the point where there is a break above the resistance.
However, it is not all the falling wedge pattern that indicates a breakout. To verify the move, we should wait for the breakout. Essentially, you’re hoping for a drastic shift beyond the support trend line for a rising wedge or the resistance trend line for a falling wedge.
For example, considering an uptrend, traders will focus on the move above a previous line at the down side. On the other hand, there is a general rule that says that downside can act as the top side. This is happens during a breakout and it should be put into practice. Therefore, to be accurate, you can wait for retracement of the uptrend wedge at the previous bottom level. Then, you can open your position with peace of mind.
As the market combines into a solid mass, it also shows that a wedge is about to reach a breakout. This also decreases the market volume. A rapid rise in volume will further prove a bigger future move.