The likelihood of a cryptocurrency trader succeeding is higher if they buy an asset from a logical position than if they buy an asset carelessly and haphazardly. Market analysis and evaluation using technical analysis can be very beneficial before making your next purchase. A falling wedge pattern is a vital technical analysis tool traders should always use.
The market trend or story in which the bulls are preparing to make another push is represented by a bullish price pattern in a falling wedge pattern.
Read More: Cup And Handle Pattern: How To Identify And Take Leverage Of It?
What is a falling wedge pattern?
A falling wedge pattern trading can form when the price of a token has been declining over time, right before the trend’s final downward movement. As buyers enter the market to slow the rate of decline and the price slide loses momentum, the trend lines drawn above the highs and below the lows on the price chart pattern may converge. The price may break through the upper trend line before the lines converge.
The coin is anticipated to trend higher when the price breaks through the upper trend line. Trading opportunities that profit from the security’s price increase should be sought after by those who spot bullish reversal signals.
Where does the descending wedge occurs?
The falling wedge chart pattern is visible when the token shows a bullish trend immediately before correcting the lower. Two trend lines that converge within this pullback are shown. Once the price action breaks through the resistance of the upper trend line, or wedge, the consolidation phase is over.
The volume, which decreases as the channel converges, is one of the distinguishing characteristics of this pattern. After the energy in the channel has consolidated, the buyers can tip the scales in their favour and drive the price action higher.
As a result, a falling wedge candlestick pattern has the following three crucial features:
- The price action shows that it is currently in a downtrend due to lower highs and lower lows;
- There is a convergence of the upper and lower trend lines;
- The volume decreases steadily throughout the channel.
The first two points must exist in the chart for an accurate falling wedge probability. Still, the third component—a decrease in volume—adds further legitimacy and validity to the pattern and is, therefore, very helpful.
Example of the falling wedge chart pattern
The illustration below is a perfect example of this pattern. The price of Litecoin has been reflecting an upswing since December 2022. The price moved from $93.88 to $180. Later, the coin plummets below $120, forming a falling wedge. The wedge encounters a correction at $130 and reflects an immediate rally. The rally continues at $240.
How to spot a falling wedge pattern?
A broadening falling wedge is a reversal pattern when it shows up after a bullish trend and a continuation pattern when it does so. The moment at which the correction ends, the price declines to allow buyers to make a purchase.
A falling wedge chart pattern can be identified by drawing lines using a trendline connecting lower highs and lower lows. The two lines will intersect and descend together. Investors should keep a close eye on the trading volume. Trading volume should decrease during the falling wedge formation because the price has entered a consolidation stage before the bullish breakout.
Advantages of falling wedge patterns in crypto
This pattern offers profitable ways for investors to make money.
- Financial markets experience it frequently.
- This pattern functions as a trend continuation pattern as well as a trend reversal pattern.
- Finding stop-loss and take-profit levels is simple.
- It has a favorable risk to reward ratio.
Disadvantages of falling wedge patterns in crypto
The following are the drawbacks of the falling-wedge pattern:
- The accuracy of falling wedge decreases with decreasing time frames.
- Identifying a falling wedge and differentiating them from others, such as the bull flag pattern may be difficult for new traders.
Even though it may be difficult to locate the ideal falling wedge model in ideal market circumstances, investors can use the suggestions in this article to locate lucrative trading opportunities. The falling wedge design, both continuation and reversal are excellent for identifying market trend reversals and developing trading strategies before trade execution or emerging new trends.
Read More: Hammer Candlesticks: How to Use This Indicator To Increase Crypto Profit?