Falling Wedge

A bullish chart pattern where price makes lower highs and lower lows within converging downward-sloping trendlines, typically resolving upward as selling pressure exhausts itself.

The falling wedge is the mirror image of the rising wedge and is typically a bullish pattern. Price moves within two converging, downward-sloping trendlines — the upper line connecting lower highs and the lower line connecting lower lows, with the upper line descending more steeply so they converge. Despite the downward appearance, each new low is smaller than the last, suggesting declining selling pressure.

The pattern is confirmed by a breakout above the upper trendline, which often comes after a long period of declining volume during the wedge formation — reflecting reduced selling — followed by an expansion of volume on the breakout. The falling wedge as a reversal pattern appears at the bottom of downtrends; as a continuation pattern it appears as a brief pullback within an uptrend before resuming higher.

Price targets for the falling wedge breakout are measured from the widest part of the pattern or the start of the downtrend that formed the wedge. The falling wedge is considered a higher-probability bullish setup than many other patterns because the false breakout rate (breaking higher then reversing) is relatively low compared to patterns like ascending triangles.

The falling wedge is the most commonly misread of the four wedge-and-triangle patterns because it looks bearish but resolves bullish. Its frequent lookalike is the descending triangle — also declining, but with a critical difference: the descending triangle's lower boundary is flat (a fixed horizontal support level), while the falling wedge has both trendlines sloping downward and converging. The rule: if the floor is flat, it's a descending triangle and the bias is bearish. If the floor slopes down alongside the ceiling, it's a falling wedge — and the narrowing, decelerating decline typically resolves upward.

This definition is for informational and educational purposes only. Nothing on Finance Compass constitutes financial, investment, or trading advice. Always conduct your own research and consult a qualified professional before making financial decisions.