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