Relative strength index (RSI): The RSI crossing above or below 70 or 30 can also be a sign that the breakout is real.Moving averages: The price crossing above or below a moving average can also be a sign that the breakout is real.Volume: A surge in volume at the breakout point can be a sign that the breakout is real.Here are some other technical indicators that can be used to confirm the breakout:

Sometimes, the price may break out of the pattern and then reverse back to the other side. This is why it is important to use other technical indicators to confirm the breakout before entering a trade. It is important to note that the breakout is not always a reliable signal. Your profit target would be the length of the wedge, measured from the breakout point to the bottom of the wedge. However, if you believe that the pattern will break up, you can buy the security at the breakout point. Your profit target would be the length of the wedge, measured from the breakout point to the top of the wedge. If you believe that the pattern will break down, you can short sell the security at the breakout point. The breakout is also important because it provides a trading opportunity. However, if the price breaks up above the upper trend line, it is a signal that the pattern is still valid and that the trend is likely to continue. If the price breaks down below the lower trend line, it is a signal that the pattern has been invalidated and that the trend is likely to reverse. The breakout is the most important part of the rising wedge pattern. What is the significance of the breakout? This will give you the right to sell the security at a certain price, even if the price goes down. Put options: If you are not sure whether the pattern will break down, you can buy put options on the security.

Short selling: If you believe that the pattern will break down, you can short sell the security at the breakout point.

Therefore, if you want to confirm the move before opening your position, you could wait for the breakout to begin, then return, and bounce of the rising wedge’s previous support level.A rising wedge can be traded in two ways: However, note that the general rule that support can convert into resistance during a breakout also applies here. Traders should especially be concerned if the rising wedge moves upwards a past support level.

Following a breakthrough, a spike in volume is a solid sign that a bigger move is on the way. Typically, you should be aiming for a significant move beyond the support line if it’s a rising wedge or a move beyond the resistance trend line if it’s a falling wedge.Īnother indicator of a wedge being near a breakout is falling volume as the market consolidates. Find the resistance point’s break (it will indicate entry into the market).Įven though the breakout is one of the ways of verifying the move, not all wedges result in a breakout.Identify the divergence between the price and an oscillator.Connect the lower highs with the lower lows with the help of a trend line (it will show convergence and create a downward slope).Identify whether there is an uptrend or a downtrend.To spot a falling wedge you should follow these steps: Thus, a falling wedge is a key technical pattern that indicates that the adjustment or consolidation has just occurred, as the asset's price has left the wedge to the upside and the broader trend is continuing. So, it’s like a signal that warns buyers that they should reorganize and attract new buying interests in order to push the price action higher. Different market conditions must be taken into consideration in both instances.Ī falling wedge marks the end of the period of consolidation. If the falling wedge appears downtrend – it’s a reversal pattern, if it appears uptrend – it’s a continuation pattern. A breakout across the upper trend line precedes it.ĭepending on where a falling wedge appears on the price chart, it can be understood as a continuation or reversal formation on the trendline.As the trend line advances, the volume decreases.The falling wedge has the following key aspects: If the resistance and support lines are pointing down, it could also be indicated as a falling wedge. The resistance line's slope must be greater than the support line's. The price action forms a downward-sloping cone as the reaction highs and lows merge.Ī falling wedge pattern forms when a market becomes centered between two intertwined resistance and support lines. It starts broad at the top and then narrows as the price drops. The falling wedge (descending wedge) pattern is a significant trend that predicts an upward trend in the future.

Falling wedge patterns