What it looks like
Draw a falling line through the lower highs and a falling line through the lower lows. The line of highs is steeper, so the two lines converge. Price makes new lows, but each one is only a little lower. The pattern completes on a close above the line of highs. The start of the wedge is its first, highest point.
What it means
Price was still falling, but each push achieved less than the one before. Sellers were losing energy while buyers caught each dip a little sooner. When price closes above the line of highs, that fading fall has ended in a break the other way.
How to trade it
- 1
Draw the steeper line of highs and the flatter line of lows.
- 2
Confirmation: a candle closes above the line of highs.
- 3
Entry: buy at that close.
- 4
Stop: below the end (the latest low) of the wedge. Example on gold: wedge begins at 4,080, latest low 4,015, close above the line at 4,030. Buy at 4,030, stop at 4,011, a 19 point risk.
- 5
Target: where the wedge began, about 4,080.
A close back inside the wedge.
Where it works best
After an extended fall into support on 1 hour to daily charts, or as a pullback inside a bigger uptrend.
WickSpeak finds falling wedge breakouts automatically and names them on the candles that made them. The note explains what it is, how to trade it and that a close back inside the wedge proves it wrong. In Playbook you can use it as a condition in a play, alone or alongside other patterns and indicators (any of the 146 patterns can be a condition), and backtest it on past candles with your own costs.
Common mistakes
- Confusing it with a falling channel, where both lines are parallel.
- Buying before the line of highs breaks.
- Expecting a big rally from a wedge with only a few touches.
Related patterns
Questions traders ask
Is a falling wedge bullish?
Yes, usually. Price is falling but each push achieves less, and the break above the line of highs is a bullish signal.
What is the target of a falling wedge?
A common target is the point where the wedge began, its first high. Resistance on the way may stop price sooner.
Where should the stop go?
Below the end of the wedge, the most recent low. A close back inside the wedge proves the break wrong.
Falling wedge vs descending triangle: what is the difference?
A descending triangle has a flat floor. In a falling wedge both lines slope down, with the highs falling faster than the lows.