FALLING WEDGE PATTERN ( REVERSAL OR CONTINUATION)
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Reversal or Continuation Pattern
Falling Wedge
Prices are moving downwards, forming lower highs and lower lows, but the price is confined within two lines which get closer together to create a pattern. This indicates a slowing of momentum and it usually precedes a reversal to the upside. This means that you can look for potential buying opportunities.
IDENTIFICATION GUIDELINES
1. The Shape of The Falling wedge –
Two price trendlines both sloping downwards, the upper one following lower highs and the lower one following lower lows. Both trendlines must slope downwards and eventually intersect.
2. Formation of The Falling Wedge –
Prices should hit the upper trendline at least twice(2-4), then fall away. Prices should fall to the lower trendline at least three lows(1-3-5), then rise up and be giving a final breakout. When you see less than 3 swing lows and 2 swing highs between the downsloping trendlines, be cautious about it.
3. Duration of The Falling wedge-
The Falling Wedge has a minimum duration of 3 weeks and it rarely exceeds 3 or 4 months long. Anything less than 3 weeks of duration likely to be a pennant formation, not a falling wedge.
4. Volume inside The Falling Wedge –
Volumes tends to be decreasing through the formation.
5. Pre-mature or False Breakout –
Because volume is usually low in The Falling Wedge formation, it takes very little activity to bring about an erratic and false movement in price, talking the price outside of trendlines.
6. Breakout –
Price closing above the upper downward sloping trendline confirms the breakout.
HOW TO TRADE A FALLING WDEGE
Trading Rules.
1. Entry –
Buy the stock day after Prices closing above the downward sloping upper trendline. If you miss it, wait for the pullback then buy when price resumes the breakout direction after the throwback completes. When you missed and, If you Don’t Get A pullback to the lower rising trendline then Don’t Chase The Stock Price for buying.
2. Price Target –
The technical target is the price which was a starting point of the downward sloping upper trendline.
3. Taking Profit –
For short-term traders, sell when the price reaches near to the price which was a starting point of the downward sloping upper trendline. For intermediate and long-term traders, hold the stock as per your risk & capital management applied before entering into a trade.
4. Stoploss –
usually, price closing below the pattern swing low is a stop-loss. But very often, The gap between the pattern swing low and breakout price is very high. So it won’t be suitable for a good risk-reward ratio. Without a Good Risk to Reward ratio in trading or investing can never create a wealth. What is the point if you are losing big and earning small? Learn to trade patterns like a pro to get maximum profit out of it.
Falling Wedge
Prices are moving downwards, forming lower highs and lower lows, but the price is confined within two lines which get closer together to create a pattern. This indicates a slowing of momentum and it usually precedes a reversal to the upside. This means that you can look for potential buying opportunities.
IDENTIFICATION GUIDELINES
1. The Shape of The Falling wedge –
Two price trendlines both sloping downwards, the upper one following lower highs and the lower one following lower lows. Both trendlines must slope downwards and eventually intersect.
2. Formation of The Falling Wedge –
Prices should hit the upper trendline at least twice(2-4), then fall away. Prices should fall to the lower trendline at least three lows(1-3-5), then rise up and be giving a final breakout. When you see less than 3 swing lows and 2 swing highs between the downsloping trendlines, be cautious about it.
3. Duration of The Falling wedge-
The Falling Wedge has a minimum duration of 3 weeks and it rarely exceeds 3 or 4 months long. Anything less than 3 weeks of duration likely to be a pennant formation, not a falling wedge.
4. Volume inside The Falling Wedge –
Volumes tends to be decreasing through the formation.
5. Pre-mature or False Breakout –
Because volume is usually low in The Falling Wedge formation, it takes very little activity to bring about an erratic and false movement in price, talking the price outside of trendlines.
6. Breakout –
Price closing above the upper downward sloping trendline confirms the breakout.
HOW TO TRADE A FALLING WDEGE
Trading Rules.
1. Entry –
Buy the stock day after Prices closing above the downward sloping upper trendline. If you miss it, wait for the pullback then buy when price resumes the breakout direction after the throwback completes. When you missed and, If you Don’t Get A pullback to the lower rising trendline then Don’t Chase The Stock Price for buying.
2. Price Target –
The technical target is the price which was a starting point of the downward sloping upper trendline.
3. Taking Profit –
For short-term traders, sell when the price reaches near to the price which was a starting point of the downward sloping upper trendline. For intermediate and long-term traders, hold the stock as per your risk & capital management applied before entering into a trade.
4. Stoploss –
usually, price closing below the pattern swing low is a stop-loss. But very often, The gap between the pattern swing low and breakout price is very high. So it won’t be suitable for a good risk-reward ratio. Without a Good Risk to Reward ratio in trading or investing can never create a wealth. What is the point if you are losing big and earning small? Learn to trade patterns like a pro to get maximum profit out of it.
Nota
ABB Falling Wedge Pattern Target Completed
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Penafian
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