Falling Wedge Chart Pattern

The falling wedge pattern is a bullish pattern that is somewhat deceptive. This is because the highs get lower and lower, while the lows do the same. After all, the market looks as if it is going to continue falling. However, the range is getting tighter and tighter, meaning that inertia is building. This means that the market will eventually move in a drastic manner. The pattern is official once we break the top trend line. You can see a falling wedge in the graphic below:

Falling Wedge formation

Falling Wedge formation

Once the markets break out above the top downtrend line, the sellers are now losing money. This means that they will have to buy back the positions in order to stop the losses. The market will continue to go higher until it reaches the target. The target is the top of the pattern itself, and as a result the buyers will drive the market to at least that price. Also of note is the fact that the previous downtrend line on the top of the pattern can then become support, as we see in the trade below. The market not only went to that level, but went even much higher than that. The pattern even marked the bottom of the previous downtrend, and with this the market offered a nice buying opportunity. The buyers continued to pile in, and therefore the market had to continue to move even after the target was reached.

Falling Wedge in action.

Falling Wedge in action.

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