How to identify and trade FALLING WEDGE Chart Pattern?
The falling wedge pattern is a bullish reversal pattern that can signal the end of a downtrend and the beginning of a new uptrend. This pattern is formed by two downward-sloping trendlines that converge toward each other. The lower trendline connects the lower lows of the price action, while the upper trendline connects the lower highs of the price action. The narrowing of the price range indicates that the sellers are losing their grip on the market, and the buyers are starting to gain control.
To spot the falling wedge pattern, you should look for a series of lower lows and lower highs on the price chart. Once you've identified this pattern, you should wait for confirmation before making a trade. Confirmation can come in the form of a bullish candlestick pattern, such as a bullish engulfing pattern or a hammer pattern, or a break above the upper trendline of the falling wedge pattern.
Once you have confirmation, you should set a stop loss order below the lower trendline of the pattern to limit potential losses in case the market moves against the trade. You should also determine a profit target by measuring the distance between the highest point of the pattern and the point where the upper trendline intersects with the price action. This distance can be added to the breakout point to set a profit target.
To enter the trade, you should buy the asset once you have confirmation and have set your stop loss and profit target. You should then monitor the trade carefully and adjust the stop loss and profit target if necessary. You should take profits if the asset reaches the profit target or if the price action begins to show signs of weakness.
In summary, the falling wedge pattern is a bullish reversal pattern that can be traded by identifying the pattern, waiting for confirmation, setting a stop loss and profit target, entering the trade, and managing the trade carefully. By following these steps, you can take advantage of this pattern and potentially profit from a new uptrend.
