The falling wedge is a bullish chart pattern (called “reversal“). It is formed by two converging bearish lines.
This is confirmed / valid if it has good oscillation between the two descending lines. The upper line is resistance line and the lower line is support line.
The falling wedge is considered valid if the price touches at least 3 times the support line and 2 times the resistance line (or at least 2 times the support line and 3 times the resistance line).
A falling wedge marks the sellers’ breathlessness. The convergence of the two lines in the same direction (decrease in the amplitude of the prices) informs us that the prices continue to fall with movements of amplitude less and less low. Sellers are finding it increasingly difficult to push price below resistance. The highest reached during the first correction on the resistance of the falling wedge will form the resistance. A second wave of decline will then occur, but of a lesser amplitude, signaling the weakness of sellers. A third wave is formed thereafter but prices will fall less and less on contact with resistance. Volumes are then at their lowest and decrease with the waves. The movement then has almost no selling force, which induces the desire for a bullish reversal.
The break of the resistance line definitively validates the pattern. This break is generally accompanied by high volumes. The price target is determined by the highest point that led to the formation of the wedge.
Notes and Statistics: #
- The steeper the trend lines of the falling wedge (strongly descending), the more violent the upward movement will be at the breakout.
- False breaks give an indication when in the direction of exit. In only 3% of cases, if a false bullish breakout occurs, the exit will be at the bottom. Exploiting a false bullish breakout is therefore statistically low risk.
- The retracement is generally 2 times faster than the formation time of the falling wedge.
- Pullbacks are detrimental to the performance of the figure.
- The break point generally occurs at 60% of the length of the falling wedge.
- Very wide falling wedge give better performance than narrow ones.
- 82% of cases, the exit is bullish.
- 55% of cases, this is a reversal figure.
- 63% of cases, the objective of the pattern is reached when the resistance line is broken.
- 53% of cases, the price performs a pullback in support on the resistance line.
- 27% of cases, false breaks appear.