The Falling Wedge is a bullish reversal (or continuation) chart pattern formed by two downward-sloping, converging trend lines. The upper resistance line falls more steeply than the lower support line, causing the price channel to narrow as it descends. This convergence signals that selling pressure is weakening. When price breaks above the upper resistance line, it triggers a bullish reversal or continuation of a prior uptrend.

How to Identify

• Both resistance and support lines slope downward — the entire pattern drifts lower
• Upper resistance line falls more steeply than the lower support line (the key distinguishing feature)
• The two lines converge over time — the price channel visibly narrows
• Price makes lower highs along the upper line and lower lows along the lower line
• Volume contracts steadily as the wedge narrows — declining volume is essential for a valid pattern
• Pattern takes 3–12 weeks to develop; longer wedges are more significant
• Breakout occurs when price closes above the upper resistance line
• Volume should surge on the breakout session — confirms genuine demand returning
• Price target: measure from the widest part of the wedge and add to the breakout point

Market Psychology

The falling wedge appears to be bearish — price is declining and making lower lows. However, the key insight is that each successive decline covers less ground. Sellers are losing conviction: they are willing to sell only at progressively lower prices above the floor. Buyers are quietly accumulating at the support line.

The narrowing channel represents a standoff that is gradually resolving in favor of bulls. When price finally breaks above the upper line, it catches short sellers positioned for further downside off guard. Their forced covering, combined with new buyers attracted by the breakout, creates a sharp and often sustained move higher. In a broader downtrend, the falling wedge can signal a significant reversal of the primary trend.