What it is
A falling wedge is a contracting formation in which both boundaries slope down but the lower one falls more slowly than the upper, so the range narrows as price grinds lower. It is generally read as bullish, either as a reversal at the end of a downtrend or as a continuation pause inside a larger uptrend.
How it works
Identification requires at least two touches on each converging line and a visible loss of downside momentum: each successive leg down covers less ground, volatility compresses, and volume typically tapers through the structure. Confirmation is a close above the upper boundary, ideally on expanding volume. A common objective is the level where the wedge began, since wedges tend to retrace quickly once they break.
How traders use it
The behaviour it captures is real enough — selling that becomes progressively less forceful while buyers absorb at higher relative levels — which is why a wedge is often a sensible place to look for a reversal candlestick, a divergence, or a first higher low to confirm the read.
Where it breaks down
Sloped patterns are the most subjective objects on a chart: two analysts drawing the same wedge will disagree about the lines, and a wedge is only confidently identifiable after it has already broken. It is easily confused with an ordinary descending channel, which has parallel rather than converging boundaries and carries no such implication. Require a confirmed break and a defined stop rather than anticipating the resolution.
Educational reference. This entry describes how a concept is defined and used. It is not investment advice, not a recommendation, and not a signal. Any rule you build from it should be tested with realistic costs before it is traded, and no historical result guarantees a future one.