Falling Wedge: The Sneaky Pattern That Quietly Signals a Pump

You’ve probably seen it a hundred times on your charts but didn’t realize it had a name—that little funnel shape where price keeps falling but each dip gets shallower, like the sellers are running out of ammo. That’s a falling wedge, and traders absolutely love it because it’s basically screaming “bullish move incoming.”

What’s Actually Happening Here?

Imagine a tug-of-war where one side keeps getting weaker. Two trendlines are converging—the upper one (resistance) and the lower one (support). The key tell? The upper line slopes steeper than the lower one. Why? Because selling pressure is drying up, and it’s getting harder to push price lower. Translation: capitulation is ending, bounce incoming.

Two Flavors of Falling Wedges

Reversal Wedge: Forms after a nasty downtrend ends. Price has been dumped, buyers finally show up. Classic bottom pattern.

Continuation Wedge: Pops up during an uptrend as a quick pullback. Sellers take profits, then bulls take back control. Think of it as a pit stop.

How to Actually Trade This Thing

1. Spot the Pattern Two downward trendlines converging. Upper line = at least 2 lower highs. Lower line = at least 2 lower lows. Simple.

2. Don’t Jump the Gun Wait for price to actually break above the upper trendline with a real candle close (not a wick fake-out). This is your green light.

3. Measure Your Target Take the height of the wedge (distance between the two trendlines at the start) and project it upward from the breakout point. That’s roughly where price should run to.

Formula: Target = Breakout Price + Wedge Height

4. Risk Management 101

• Stop-loss: Just below the lowest point of the wedge (or below the breakout candle if you’re being extra cautious)
• Take profit: Hit your measured target or lock in gains with a trailing stop

5. Entry Styles (pick your poison):

• Conservative: Wait for the confirmed breakout above resistance
• Aggressive: Buy near the lower trendline before breakout (tighter stops, but better entry if it works)
• Patient: After breakout, wait for a retest of that upper line as new support, then buy again

Make Sure It’s Real: Use These Signals

• Volume: Dies down while the wedge forms, then spikes on the breakout. No volume spike = probably fake.
• RSI Divergence: Price makes lower lows but RSI makes higher lows = hidden bullish divergence = strong confirmation
• MACD: Bullish crossover around breakout time = chef’s kiss
• Moving Averages: If price breaks above the 50-EMA or 200-EMA while breaking the wedge, momentum is real

Real Talk: What Kills Trades Here

• Entering before the breakout closes (candle wicks lie)
• Ignoring volume—lots of false breakouts without volume confirmation
• Chasing targets that are too far out; stick to the measured move
• Forcing it—not every converging trendline is a valid wedge

Bottom Line

Falling wedges are one of the cleanest reversal/continuation patterns out there. Discipline matters: wait for the confirmed breakout, validate with volume and indicators, and stick to your stops and targets. The traders who get rich off this pattern aren’t the ones guessing early—they’re the ones who wait for confirmation and let the math do the talking.