#falling wedge

When it comes to trading education, few patterns are as misunderstood as wedge formations. These powerful chart patterns can signal major reversals in cryptocurrency markets, but their counter-intuitive nature trips up many beginners.

Understanding Wedge Patterns

Wedge patterns occur when two trendlines converge while both sloping in the same direction. This "same direction" characteristic is crucial - it's what separates wedges from triangles.

The Counter-Intuitive Truth:

Rising wedges (both lines slope up) = BEARISH 📉

Falling wedges (both lines slope down) = BULLISH 📈

Rising Wedge: The Bull Trap

A rising wedge forms during an uptrend when price makes higher highs and higher lows, but the range between them narrows. Despite the upward movement, this pattern signals weakening buying pressure.

Key Signs:

Both trendlines slope upward

Support rises faster than resistance

Volume declines during formation

Expected breakdown below support

Success rate: ~81% in bull markets

Why it works: Each rally gains less ground than the previous one. When buyers finally exhaust, price typically crashes through support.

Falling Wedge: The Bear Trap

A falling wedge forms during a downtrend when price makes lower highs and lower lows, but the range narrows. Despite the downward movement, this pattern signals weakening selling pressure.

Key Signs:

Both trendlines slope downward

Resistance falls faster than support

Volume declines during formation

Expected breakout above resistance

Success rate: ~74% in bull markets

Why it works: Each decline covers less distance. When sellers exhaust, price typically surges through resistance.

How to Trade Wedge Patterns

Step 1: Identify the Pattern

Draw trendlines connecting 2-3 highs and 2-3 lows

Verify both lines slope the same direction

Confirm the lines are converging (not parallel)

Count at least 4-5 total touches on the trendlines

Step 2: Confirm with Volume

Volume is critical. Look for:

Declining volume during pattern formation

Volume spike (2-3x average) at breakout

Sustained volume after breakout

Step 3: Wait for Breakout

Don't jump the gun! Wait for:

Candle close beyond the trendline (not just a wick)

Volume confirmation

Ideally, wait for a retest for lower-risk entry

Step 4: Set Your Trade

For Rising Wedge (Short):

Entry: Below support with volume

Stop: Above recent high

Targets: 38.2%, 61.8%, 100% Fibonacci retracements

For Falling Wedge (Long):

Entry: Above resistance with volume

Stop: Below recent low

Targets: 38.2%, 61.8%, 100% Fibonacci retracements

Common Mistakes

❌ Trading too early - Wait for confirmation ❌ Ignoring volume - No volume = no trade ❌ Wrong timeframe - Stick to 4H and Daily for crypto ❌ Confusing with triangles - Remember: wedge = both lines same direction

Why Wedges Excel in Crypto

Rising wedge and falling wedge crypto patterns are particularly reliable because:

24/7 markets create cleaner patterns without gaps

High volatility means patterns form faster (2-3 weeks vs 6 weeks in stocks)

Technical traders create self-fulfilling prophecies at key levels

Real-World Example

Imagine Bitcoin forms a rising wedge:

Starts at $40,000

Rallies to $42,500 over 3 weeks

Each rally shows less volume

Breaks below $41,000 with 3x volume

Bearish signal - target $38,000-39,000

This is the pattern in action. The upward movement masked the underlying weakness until the breakdown.

Best Practices for 2026

When trading rising wedge vs falling wedge crypto 2026 patterns:

✅ Always check multiple timeframes ✅ Never risk more than 1-2% per trade ✅ Use the 6-step identification process ✅ Scale out at Fibonacci targets ✅ Keep a trading journal to track pattern performance

Final Thoughts

Wedge patterns are among the most reliable formations in technical analysis, with success rates of 74-81%. The key is understanding their counter-intuitive nature:

Rising = Bearish (weakening bulls)

Falling = Bullish (weakening bears)

Master volume confirmation, wait for breakouts, and manage your risk properly. With practice, you'll develop an eye for these patterns and gain a significant edge in crypto markets.

Remember: The direction of the wedge shows the direction of weakening momentum, which typically leads to a reversal in the opposite direction.

Same with the SPX which closed the month of July just below its 21 month sma which is still on a sell signal. Gold made a valiant effort, but closed the month of July just below the 10 and 20 month ema. Inflation / deflation chart with the GDX on the bottom.Īll the chart patterns made during the 2000 to 2011 bull market. Just like any chart pattern it can form on any timeframe.Ĭan the current price action trade back above the top rail to complete the third bullish expanding falling wedge?ĪAPL history chart: You know the pattern is valid when you see the backtest form where it is supposed to. When you look at the following charts think how much fun you would have if you had bought the very bottom of the bullish expanding falling wedge and had the courage to ride the move to completion. Normally I will buy the breakout and backtest of a chart pattern unless I see a reversal pattern forming on an important trendline, then I’ll try to buy the bottom which is tougher to do. The charts to follow are pretty self explanatory, but you will see with your own two eyes why I like this pattern so much. In a bull market the bullish expanding falling wedge and the bullish rising wedge are my two favorite chart pattens. I’ve been showing many bullish expanding falling wedges since the very first day we opened up our door back in 2011. When you look at the first chart, the daily line combo chart above, note where the small H&S and double bottoms show up on this chart below. If one can spot the last reversal point in the expanding falling wedge they will be richly rewarded while the sellers will be greatly disappointed for selling their shares in a panic. The last point I would like to make about the potential bullish expanding falling wedge is that this is one of the hardest patterns to spot in real time as I described in the 2nd paragraph of this Weekend Report. If we see that happen then we’ll know the big H&S consolidation pattern will also give way. It is very important to keep in mind that this potential bullish pattern won’t be complete until the top rail is broken to the upside. When the price action started to trade below the right shoulder neckline symmetry line I began to lose hope that the potential massive H&S consolation patterns were failing.Īs you can see that just about every PM stock indexes is showing the blue expanding falling wedge. Its been several months since I last showed you the monthly combo chart for the PM complex which shows the potential massive H&S consolidation patterns. I’ve been showing you for a month or so where we may look for important support to come into play which is where the bottom rail of the 2016 rising wedge and the bottom rail of the blue expanding falling wedge intersect around the 200 area which so far has been holding support. There are two rather large consolidation patterns that make up the internal structure of the potential 2016 rising wedge formation, the 2016 bullish falling wedge and the possible 2020 expanding falling wedge. We’ve been following this next long term weekly chart for the HUI which shows the 2016 trading range which is still under construction. The SLV has a small double bottom reversal pattern. The reason I want to start with this chart is to make you aware of where those small H&S and double bottoms are in the bigger picture.Īs you can see the GDXJ, GLD, SIL and the GOEX have a small H&S reversal pattern forming after the steep decline from the double top. I would like to start with the daily line chart for the PM complex we’ve been following on a daily basis which now shows some small reversal patterns like the H&S and double bottoms. Once that happens there are no sellers left and the move reverses direction leaving those that sold into the decline sitting on the sidelines. The reason this pattern is so bullish is because it is made up of lower highs and lower lows with the last low being extreme, catching all the sell/stops and scaring investors out of their positions. My experience with this pattern is that it often leads to a big move. This is a bullish pattern that few if any chartists actually look for. I’ve been mentioning lately that I thought that many areas in the PM complex could be building out a potential bullish expanding falling wedge.

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