Lesson 6A - Breakout Patterns - Falling Wedge (Bullish)
Welcome back to Lesson 6 traders. I have something interesting for y'all in this lesson. This lesson is going to be a series on Breakout Patterns. I will be posting one breakout pattern at a time, so it is easy to understand, and clean enough to follow. The following lessons are going to be posted in lesser time. So in the Lesson 6 series, since there will be multiple topics for breakout patterns, I will be splitting them into Lesson 6A, 6B, 6C and so on....
In Lesson 6A, we will be going over the Falling Wedge breakout pattern. We will be looking over the criteria to qualify for this pattern, and what to look for in order to get a breakout confirmation.
Falling Wedge is usually a bullish pattern most of the time. It usually is wide from the top and contracts as it moves down to the lower price levels.
There are certain criteria for a falling wedge to qualify to be a reversal or a breakout pattern. Lets follow the chart above in order to get a good understanding of what I am taking about here.
Actually I will post the above chart right here for you so it can be easier for you:
So in the chart above we can clearly see TWO falling wedges, they both are for the same breakout that happened in TRX, so you can refer to any of them. We will go over the step again as a summary, but let us first go over the detail so you get a clear view on this.
Whenever I am looking for a falling wedge patterns, I make sure the resistance line, which is the upper line of the falling wedge connects minimum of 3 candle sticks. Sometimes we can get away with 2 candle sticks, but when we have 3 connected candle sticks, meaning the price has pulled back after touching the resistance line at least 3 times, we can check off one of the criteria for a falling wedge.
Now for the support line, which is the lower line of the falling wedge should at least have a minimum of 2 candle sticks touching the line, meaning the price has bounce at least 2 times after touching the support (lower) line of the falling wedge. This is considered the second criteria for the falling wedge. This just means that you have a close to accurate enough data to consider this as a reversal pattern for the selected time frame you are into.
If we look closely at the chart, for the resistance line, the price has pulled back after touching it about 4 times, and 3 times for the blue support line. Notice how the price candles have not closed outside of the resistance or the support line. This is really important for a valid pattern. Since we have BTC movement effecting the altcoin prices, we can ignore the candles closing just a little outside the resistance/support lines, but mostly the price should be moving inside the wedge.
Another criteria for a falling wedge is that, it starts out wide, and the wedge contracts as seen in the chart, as the price moves lower.
Once we have these three criteria lined up, we have a confirmation that the price pattern is currently moving in a falling wedge. So now, all we need to do is wait for the breakout. Remember, this is very very important. In order to confirm this reversal, the price must breakout from the falling wedge to the upwards. If it breaks towards the bottom (support line), this pattern gets invalid.
As we see in the chart above, the candle breaks out of the falling wedge, and the price start moving rapidly upwards. Thus, we can say that the falling wedge on the chart above is a valid falling wedge pattern.
You must have understood this pattern by now. Make sure you do by reading what I have written above, and looking at the chart at the same time.
Continue reading below......
In Lesson 6A, we will be going over the Falling Wedge breakout pattern. We will be looking over the criteria to qualify for this pattern, and what to look for in order to get a breakout confirmation.
Falling Wedge is usually a bullish pattern most of the time. It usually is wide from the top and contracts as it moves down to the lower price levels.
There are certain criteria for a falling wedge to qualify to be a reversal or a breakout pattern. Lets follow the chart above in order to get a good understanding of what I am taking about here.
Actually I will post the above chart right here for you so it can be easier for you:
So in the chart above we can clearly see TWO falling wedges, they both are for the same breakout that happened in TRX, so you can refer to any of them. We will go over the step again as a summary, but let us first go over the detail so you get a clear view on this.
Whenever I am looking for a falling wedge patterns, I make sure the resistance line, which is the upper line of the falling wedge connects minimum of 3 candle sticks. Sometimes we can get away with 2 candle sticks, but when we have 3 connected candle sticks, meaning the price has pulled back after touching the resistance line at least 3 times, we can check off one of the criteria for a falling wedge.
Now for the support line, which is the lower line of the falling wedge should at least have a minimum of 2 candle sticks touching the line, meaning the price has bounce at least 2 times after touching the support (lower) line of the falling wedge. This is considered the second criteria for the falling wedge. This just means that you have a close to accurate enough data to consider this as a reversal pattern for the selected time frame you are into.
If we look closely at the chart, for the resistance line, the price has pulled back after touching it about 4 times, and 3 times for the blue support line. Notice how the price candles have not closed outside of the resistance or the support line. This is really important for a valid pattern. Since we have BTC movement effecting the altcoin prices, we can ignore the candles closing just a little outside the resistance/support lines, but mostly the price should be moving inside the wedge.
Another criteria for a falling wedge is that, it starts out wide, and the wedge contracts as seen in the chart, as the price moves lower.
Once we have these three criteria lined up, we have a confirmation that the price pattern is currently moving in a falling wedge. So now, all we need to do is wait for the breakout. Remember, this is very very important. In order to confirm this reversal, the price must breakout from the falling wedge to the upwards. If it breaks towards the bottom (support line), this pattern gets invalid.
As we see in the chart above, the candle breaks out of the falling wedge, and the price start moving rapidly upwards. Thus, we can say that the falling wedge on the chart above is a valid falling wedge pattern.
You must have understood this pattern by now. Make sure you do by reading what I have written above, and looking at the chart at the same time.
Continue reading below......
1. Once, you draw a resistance line, connecting the candle highs, make sure at 3 candles are touching the line, and not closing above the line.
2. Make sure once you draw the support line, at least 2 candles are touching the line, and not closing below the support line.
3. Confirm that the falling wedge is wide at top, and contracts as the price falls down.
4. Confirm that the price does not breakout below the support line, otherwise this pattern will become INVALID.
5. Wait for the price candle to breakout and close above the resistance line before making your entry. If you are for sure that it is going to breakout based on the volume increase and other indicators, then you may enter early as well.
These are the simple steps you need to follow when you encounter a falling wedge, and you can bank some good profits out of it.
Few things to keep in mind are:
- You need to make sure you put a stop-loss when you make your entry, as sometimes which is rare, but what happens is that the price breaks out, but then falls back right into the wedge, as most of the market is affected by BTC movement. We have to really keep this in mind. You can use the indicators explained in the earlier lessons, to help you in predicting the price direction.
- Best way to practice is looking over the historical chart data, and drawing the falling wedge on it. Try to identify the past falling wedge patterns.
Below is another example of a falling wedge pattern:
Falling Wedge is one of the many breakout patterns we will be looking in this Lesson 6 series. There are many more to come very soon. But make sure you get this one right till the next one comes out.
I hope you enjoyed this lesson.
If you have any questions regarding this, feel free to ask me in the comments below, or you can also join our telegram group/channel since that always stays updated. I also post some charts on the telegram group/channel when analyzing the market, so y'all are most welcomed there. You can find the link in my signature. Join the community. Lets learn and earn!
Stay tuned for the next lesson.
Happy Trading folks!