Falling Wedge

While a Wedge pattern is most often known as a Reversal Pattern (a chart pattern where the trend of a stock is reversed once the pattern is confirmed), a falling wedge may be either a reversal pattern or a continuation pattern, depending on the prevailing trend factor.

Wedge patterns act in a similar manner to triangle patterns in that they manifest themselves in the form of converging trend lines and narrowing price ranges although wedge patterns are known to have a quite noticeable upward or downward tilt.

Although a falling wedge pattern may be found in both uptrends and downtrends, and thus may signify either a continuation or a reversal. If a falling wedge occurs on an uptrend the then the falling wedge will act in a similar way to a bull pennant and form part of a continuation pattern, however if the falling wedge should occur in a downtrend then it will always follow reversal pattern.

In order to determine the breakout expectations of a falling wedge, attention should first be paid to whether it occurs in the case of a continuation falling wedge, in which case the widest portion of the wedge is measured and added to the breakout level to determine the upside move to follow. Alternatively, if the falling wedge occurs within a reversal pattern, then the widest portion of the wedge should be added to the breakout level to determine the upside move which follows.

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