![]() This chart pattern remains in place signaling a downtrend in price until the upper descending trend line is eventually broken by price to the upside. Notice that the $SPY chart below had lower lows and lower highs for several weeks creating a descending upper trend line. Less depth in lows indicate a decrease in the strength of selling pressure and should create a lower trend line of support with less declining slope than the upper line of resistance. This pattern creates lower lows, but the new lows should become less in magnitude.This is usually a longer-term pattern that generally forms over a three to six-month timeframe but can also appear on shorter time frames.The bullish bias in this pattern will not be signaled until a breakout back above the descending resistance to show this is a reversal pattern from lows in price.This price action forms a descending cone shape that trends lower as the vertical highs and vertical lows move together to converge.The descending wedge is a bullish chart pattern that begins with a wide trading range at the top and contracts to a smaller trading range as prices trend down.The descending wedge is a bullish pattern regardless of what kind of market it occurs in.When it is a reversal pattern, the falling wedge trends down when the overall market is in a downtrend. ![]() When it is a continuation pattern it will trend down, however the slope in the wedge will be against the overall market uptrend. However, it is advisable to monitor other technical analysis indicators and market news that could influence price action.The descending wedge chart pattern more commonly known as the falling wedge can fit in the continuation or reversal category. Exit Strategy: Traders usually exit the position once the price reaches the predetermined target. ![]() This involves setting appropriate position sizes and using other technical analysis indicators to validate the pattern, such as the Relative Strength Index (RSI) or Moving Average Convergence Divergence (MACD). ![]() Risk Management: It is critical to manage risk effectively when trading the rising wedge pattern.Some traders use fibonacci retracement levels as additional targets to fine tune their exit strategy. Price Target: The price target is usually determined by measuring the height of the pattern at its widest point and subtracting that value from the breakout level.This minimizes potential losses in case the pattern fails and the price reverses into an uptrend. Stop Loss: A stop loss is generally set just above the last high within the pattern.The breakout point below the lower trendline serves as the entry point. Entry Point: Once the pattern is confirmed, traders often enter a short position.A declining volume during the formation of the wedge can serve as additional confirmation. This typically comes in the form of a price breakout below the lower trendline. Confirmation: Before entering a trade, the trader or investor will wait for confirmation.The pattern usually forms during an uptrend. A trader or investor would look for converging, upward sloping trendlines with higher highs and higher lows. Identification: The first step is to identify the rising wedge pattern on the chart.
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