Falling or Declining Wedge Formation
Falling Wedge, also known as declining wedge, is the wedge formation which has a strong bullish bias. They can be trend continuation pattern, if preceded by an uptrend or can be trend reversal pattern, if preceded by a downtrend. Falling wedge formation occurs when prices increasingly tend to consolidate to a lower price levels. The formation helps long-term traders as it usually takes months to develop.
In falling wedge formation, both upper (resistance) and lower (support) have downward slops; upper line is steeper than lower one. Prices tend to make lower highs and lows. Declining wedge formation occurs when bears continuously fail to break the lower support level. Volume of trade tends to decrease as the pattern forms. At one time breakout occurs; mostly upwards. Breaks up is noticeable with a significant increase in volume.
Falling wedge formation is one of the difficult formations to identify and trade. The formation also has high failure rate. To qualify as a valid falling wedge formation there should be at lest two, ideally three, reaction highs and lows that touch the upper and lower lines. The pattern is less reliable when there is no much increase in volume at breakout.
Falling wedge formation is more reliable as trend-continuation patterns. Traders enter buy orders when the price breaks up. Often there can be correction movement after breakout to test the reliability of new support level. Traders should use other tools to confirm trend-changes and to figure out entry and exit points.
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In falling wedge formation, both upper (resistance) and lower (support) have downward slops; upper line is steeper than lower one. Prices tend to make lower highs and lows. Declining wedge formation occurs when bears continuously fail to break the lower support level. Volume of trade tends to decrease as the pattern forms. At one time breakout occurs; mostly upwards. Breaks up is noticeable with a significant increase in volume.
Falling wedge formation is one of the difficult formations to identify and trade. The formation also has high failure rate. To qualify as a valid falling wedge formation there should be at lest two, ideally three, reaction highs and lows that touch the upper and lower lines. The pattern is less reliable when there is no much increase in volume at breakout.
Falling wedge formation is more reliable as trend-continuation patterns. Traders enter buy orders when the price breaks up. Often there can be correction movement after breakout to test the reliability of new support level. Traders should use other tools to confirm trend-changes and to figure out entry and exit points.
NobleTrading.com Offers Online Stock Trading, Online Options Trading
Online Futures Trading, Online Forex Trading
Worldwide Brokerage Service, Day Trading Brokerage
posted by NobleTrading at
7:55 AM
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