“Falling Wedge” patterns are similar to “Symmetric Triangles” as they form in an angle; where as the “Symmetrical Triangles” form horizontally. “Falling wedge” patterns have lower highs and lower lows and are connected with two angled, slanted trend lines. These trend lines diverge at the bottom. Another type of “wedge” (inverse) pattern has trend lines converging at the bottom. The trend direction on the breakout from the “Falling Wedge” pattern would be upside.

“Falling wedges” are usually bullish in uptrend and downtrend markets. Similarly, “Falling wedge” patterns have a high failure rate. They are relatively difficult to spot them, and tend to work well in bearish markets.

Trade:
The “wedge” patterns are defined by trend. lines connecting the “higher-highs” and “lower lows.” A trend line breakout suggests a “long” trade. Trades are entered after a clear breakout from the trend line. Enter a “long” trade, one tick above the high of the breakout bar from the trend line.

Target:
Place a target at the higher “swing high” level of the “wedge” pattern. A secondary target is set at the depth of the wedge pattern from the breakout level.

Stop:
Place a “stop” order below the lowest level of the “wedge” pattern.

Trading Falling Wedge Pattern

Trading Falling Wedge Pattern

The example above illustrates a “Falling wedge” pattern from the Russell Emini futures (ER2) 5m chart. “Falling wedges” are bullish patterns. On January 22,2007, during the afternoon’s trading, ER2 made lower highs and lower lows to form a “wedge” pattern. On January 23, ER2 traded higher and closed above the trend line.

  1. A “long” trade was entered above the breakout bars high.
  2. A “stop” order was placed below the low of the “wedge” at the 780 level.
  3. A target is set at the depth of the “wedge” pattern from the trade entry.

Trading Falling Wedge Pattern

The example above shows a “Falling wedge” pattern from the Russell 2000 15 minute chart. A “wedge” pattern developed from March 13,2007 to March 14,2007 (until 12pm) as ER2 made lower lows and lower highs. Two trend lines are drawn in the chart above connecting these “lower highs” and “lower lows.” A “close” above the upper trend line signals a “long” trade above the 775 level.

  1. Enter a “long” trade above the high of the trend line breakout bar.
  2. Place a “stop” order below the low of the “wedge” pattern.
  3. Target the depth of the “wedge” pattern from the trade entry level.
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