Falling Wedge

The Falling Wedge is a chart patterns indicator used in Skyrexio Strategy Builder for pattern recognition and reversal/continuation signals.

Falling Wedge

Introduction

The Falling Wedge is a bullish reversal chart pattern that signals potential LONG opportunities or SHORT position exits. This pattern occurs when price moves lower between converging trend lines with diminishing volume, often indicating a potential reversal to the upside.

How Falling Wedge Works

Falling Wedge is a bullish reversal chart pattern with specific characteristics:

• Converging trend lines - Both upper and lower lines slope downward, lower line steeper • Volume pattern - Typically diminishes as pattern develops • Momentum divergence - Price makes lower lows while momentum weakens • Confirmation requirement - Pattern confirmed when price breaks above upper trend line • Target calculation - Wedge height added to breakout point

Pattern Psychology: The pattern shows bears pushing price lower but with decreasing conviction. The converging lines and diminishing volume indicate weakening selling pressure. When price finally breaks above the upper trend line, it demonstrates that buyers have overwhelmed the weakening bears.

Key Characteristics

Attribute	Details
Category	Chart Patterns
Type	Bullish Reversal Signal
Primary Use	LONG entries, SHORT exits
Timeframe	All timeframes supported (1m to 1M)
Confirmation	Upper trend line break, volume, momentum divergence

Strategy Applications

🟢 LONG STRATEGY (Primary Use)

Falling Wedge is primarily a LONG signal - enter long positions when price breaks above the upper trend line with volume confirmation.

Base Entry Order (LONG)

Base Order Condition: Falling Wedge breakout
First Condition: Falling Wedge
Timeframe: 1H

Additional Confirmation:
First Condition: Volume
Timeframe: 1H  
Operator: Greater Than
Second Condition: Simple Moving Average (20)
Timeframe: 1H

Take Profit Orders (LONG)

Rule 1: Exit condition - Wedge target reached
First Condition: Close Price
Timeframe: 1H
Operator: Greater Than
Second Condition: High Price
Timeframe: 1H

OR

Rule 2: Exit condition - Overbought warning
First Condition: RSI
Timeframe: 1H
Operator: Greater Than
Second Condition: Value
Value: 75

Stop Loss Orders (LONG)

Rule 1: Stop loss - Pattern invalidated (break below lower line)
First Condition: Close Price
Timeframe: 1H
Operator: Less Than
Second Condition: Low Price
Timeframe: 1H

OR

Rule 2: Stop loss - Volume decline breaks bullish momentum
First Condition: Volume
Timeframe: 1H
Operator: Less Than
Second Condition: Simple Moving Average (20)
Timeframe: 1H

🔴 SHORT STRATEGY (Secondary Use)

Falling Wedge is used in SHORT strategies primarily as an exit signal for existing positions.

Counter-Trend Risk: Using Falling Wedge for new SHORT entries is high-risk and should be avoided.

Take Profit Orders (SHORT) - Exit existing positions

Rule 1: Exit condition - Falling Wedge signals trend reversal
First Condition: Falling Wedge
Timeframe: 1H

OR

Rule 2: Exit condition - Volume divergence warning
First Condition: Volume
Timeframe: 1H
Operator: Less Than
Second Condition: Simple Moving Average (20)
Timeframe: 1H

Best Practices

For LONG Strategies

1. Wait for breakout - Pattern isn't confirmed until upper line break

2. Volume confirmation - Ensure volume increases on breakout

3. Momentum divergence - Look for RSI/MACD divergence

4. Target management - Use wedge height for profit targets

For SHORT Strategies

1. Exit signal only - Use primarily to exit existing SHORT positions

2. Volume warning - Declining volume warns of trend weakness

3. No new entries - Avoid new SHORT positions with this pattern

Market Conditions Analysis

Market Type	LONG Strategy Effectiveness	SHORT Strategy Effectiveness
Uptrend	🟡 Medium (continuation)	🔴 Low (counter-trend)
Downtrend	🟢 High (major reversal)	🔴 Very Low (against pattern)
Ranging	🟡 Medium (at support)	🟡 Medium (exit signal only)

Related Patterns

Pattern	Relationship	Link
Rising Wedge	Opposite bearish signal	Rising Wedge
Inverse Head and Shoulders	Similar bullish reversal	Inverse Head and Shoulders
Triangle	Similar converging lines	Triangle

Conclusion

Falling Wedge is primarily a LONG signal indicating potential trend reversal from bearish to bullish. The pattern is most effective when it shows volume divergence and momentum weakness during the formation.

Key Takeaways

• PRIMARY USE: LONG entries after upper trend line breakout

• SECONDARY USE: SHORT exits when holding positions

• NEVER: New SHORT entries with this bullish pattern

• ALWAYS: Confirm with volume and look for momentum divergence

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