Falling WedgeTechnical Analysis
A Falling Wedge is a bullish pattern that uses two highs to form a downwards sloping resistance line, and two lows to form downwards sloping support line. The lines should be converging. It is important to know that the distance between the swing lows and the swing highs will narrow, even though price is falling. This implies strengthening demand. When price breaks the upper resist a purchase is signaled. A high risk entry is waiting for price to break the down sloping upper trendline and entering. For a low risk entry wait for the smallest or most recent peak before the break of the upper trendline to be broken before entering. The stop should be on the far side of the wedge, below the most recent swing low.
Volume will decrease as the pattern develops. The price will rise after the breakout to the bottom. The target is measured by taking the distance between the highest peak and the lowest trough and projecting that distance down from the support line breaking.
Note that the falling wedge can also be a bullish reversal pattern. Falling Wedge Reversals are treated exactly the same as the continuation pattern. The only difference is the prior trend.
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