Falling Wedge
A pattern in which both lines slope downwards and converge to the right. Price keeps making lower highs and lower lows, but the upper line is steeper than the lower one, so each new low undercuts the last by less. It is usually read as bullish, and it completes with a close above the upper line.
How it forms
- Prior move. The pattern is most often seen at the end of a downtrend, where it is read as a reversal pattern. It can also form within an uptrend, as a downward correction against the rise. There it is read as a continuation pattern.
- Steeper lower highs. Price makes at least two peaks, each lower than the one before. The line joining them slopes downwards and is steeper than the lower line. So the two lines converge to the right.
- Lower lows. Over the same period, price makes at least two troughs, each lower than the one before. Joining them gives a downward-sloping lower line.
- Narrowing. Each new low undercuts the last by a little less, and the swings get smaller. At least four touches in total (two on each line) are needed; five or more make the pattern clearer. Volume often falls during this phase.
- Breakout zone. The break usually comes before the apex where the lines meet, roughly two thirds to three quarters of the way along the wedge. If price drifts all the way into the apex, the pattern starts to lose meaning.
- Completion. The pattern is complete when price closes above the upper line. A wick above the line that closes back below it is not a breakout.
The thresholds here are approximate values commonly used in textbooks, not strict rules.
What it suggests
Price keeps falling, but each new low undercuts the last by less. Sellers keep pushing the highs down while progress at the lows shrinks. This can suggest the fall is losing strength and sellers are holding price down within an ever narrower range.
At the end of a downtrend, the pattern is read as the trend tiring. Within an uptrend, the fall is seen as just a correction, and a break of the upper line can suggest the rise may resume. Either way, the direction is not settled before the break. If price closes below the lower line, the picture changes.
When it strengthens, when it weakens
Strengthens
- A clear downtrend or uptrend before the pattern
- The lower line falling into a support zone
- More than two touches on each line
- Volume falling during the pattern and rising at the break
- The break coming in the last third, before the apex
Weakens
- Lines drawn with few touches, or forced to fit
- Lines with almost the same slope (no real narrowing)
- Price drifting all the way into the apex
- A strong resistance zone just above the upper line
- False breakouts, where a wick crosses the line but the close stays below
The MarketLevelMap view
How it relates to zones
The sides of a falling wedge are sloped. So zones mostly matter in terms of where the wedge is falling into and where the break is heading:
- If the lower line is falling into a support zone, price can be seen approaching that zone with ever weaker lows. Buyers in the zone may be meeting the last steps of the fall.
- If a wedge within an uptrend ends just above a former resistance zone, the fall can be read as a retest of that zone. The zone may now be acting as support.
- If a resistance zone sits just above the break, there is an area where price may stall again soon. It is a more realistic reference than the measured move.
After the break, price sometimes returns to retest the upper line from above. Because the line is sloped, the retest point moves down over time. If the broken line is close to the edge of a zone, the retest may also happen inside that zone. If price does not close below the zone on the retest, the break is considered more solid.
When it completes
Close above the upper line.
When it is invalidated
Before completion: If price closes below the lower line before breaking the upper line, the narrowing is broken and the pattern is considered not to have formed. The fall may be gaining pace instead.
After completion: Even after a close above the upper line, if price falls back into the wedge and closes below the last low, the bullish scenario is considered invalid. False breakouts like this sometimes lead to sharp moves down.
Often confused with
For general information only. Not investment advice.Last updated: