Introduction to Chart Patterns

Falling Wedge

By March 17, 2016 December 1st, 2018 No Comments

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Bullish Reversal or Continuation?

Sometimes in life, things are not always as they first appear, and the same is true for the stock market. Usually, technical analysis patterns can be divided into two neat categories, reversal and continuation. The appearance of a reversal pattern usually means that the current trend, whether up or down, it headed in the opposite direction after the pattern is completed. The appearance of a continuation pattern usually means that although there may be some hiccups in the road ahead, the prevailing trend will eventually continue on its way. But what about when a pattern forms that could indicate both?

Generally considered to be a bullish pattern, the falling wedge begins with wide trend lines at the top and becomes narrower as the prices continue to decrease. These two movements happening at the same time creates a noticeable cone shape on the price charts, and you should be able to see that it slopes down at the intersection of the reaction highs and reaction lows. Unlike symmetrical triangles, which are without a definitive slope and usually have no bias, the falling wedges will always have a negative slope and display a bullish bias, although this can’t be confirmed without a resistance breakout.

It’s important to note, however, that the falling wedge can be classified as a continuation pattern in some circumstances. When the falling wedge forms as a continuation pattern instead of a reversal, you’ll still want to look for a downward slope, but the slope will be in opposition to the prevailing uptrend. Either way you see it form, the falling wedge is generally regarded as a bullish, or buyer friendly, pattern.