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Falling Wedge

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by Jay Lakhani -  Dec 4, 2006
7.4 (from 20 ratings)

A detailed step by step guide of how to trade a falling wedge has been illustrated in a free video, to view it please click on the following link

http://www.4x4u.net/review/51/51.html

Key aspects of a falling wedge are summarised as follows;

A Wedge formation is similar to a triangle in appearance in that they have converging trendlines. A falling wedge is generally a bullish chart pattern that begins wide at the top and contracts as the prices move lower. This pattern has a series of lower highs and lower lows.

The following chart on EURGBP (Nov2006) illustrates a good example of a falling wedge, and this was covered live at one of my live Webinar enabling traders to pull the trigger, thus far it has been a very good profitable trade.

Charts by Esignal.com

The bullish bias is generally realised when there is a break of the resistance line. However, often aggressive traders are able to get in early provided there are a number of confluences of indicators, in the above chart you have a perfect Wave 3 bullish divergence, bounce of the trendlines, a series of higher lows and than taking a top down approach, bounce of EMAs and pivot points.

So what are the guidelines for a falling wedge?

  1. A price trend must be underway leading to a pattern.
  2. There must be a falling upper resistance line with 3 or more touches.
  3. There must be a falling lower support line with 3 or more touches.
  4. Contraction – the support and resistance lines converge to form a cone as the pattern matures. 
  5. Breakout – this can be in any direction, but generally it will be to the upside. 
  6. The pattern is confirmed when you have a decisive close outside one of the trendlines.

Free Educational downloads

Bindal FX provides free educational videos and articles, please feel free to download these from our website, the link is as follows;

http://www.4x4u.net/Education.asp


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Comment on this Article

Recent Comments:
The Falling Wedge in the video is not the best example. Typically a Falling Wedge occurs in an uptrend as a Wave 2 or 4 in an Elliott Wave pattern. They are extremely common in Forex and should be traded by entering when the most recent high is taken out in the complex correction that is in process. A correction to a trend very often takes the form of a falling wedge or a rising wedge in a down trend. I trade them frequently and when the correction enters a fibonacci target when an...
tradeartist   07-01-2007 01:44:00
the GBP/USD looks like its good for a short position but I think its still a bit early I liked the video although I believe it is tougher to spot those things live Quote: Originally Posted by Marwan2010 have a look at GBPUSD 30 min chart, a nice example of a wedge, you got 3 touches at the bottom and trying to break or bounce, looks interesting! - will attach a chart later once the mkt settles
thebull27   04-01-2007 18:12:10
have a look at GBPUSD 30 min chart, a nice example of a wedge, you got 3 touches at the bottom and trying to break or bounce, looks interesting! - will attach a chart later once the mkt settles
Marwan2010   04-01-2007 04:42:40
Quote: Originally Posted by thebull27 but in the picture in the article he doesnt have three upper touches. wedge is one of my favorite formations but I think you only need two touches on top and bottom. three is too much you miss out on a lot of good formations that way Yes if you watch the video , you will see that the upper trendline has 6/7 touches and the bottom has 3, yes you can have a wedge with 2...
Marwan2010   03-01-2007 20:26:24
but in the picture in the article he doesnt have three upper touches. wedge is one of my favorite formations but I think you only need two touches on top and bottom. three is too much you miss out on a lot of good formations that way
thebull27   30-12-2006 06:26:22

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