I want to share one of my favorite patterns in technical analysis. A falling wedge is a pattern that often provides good entry opportunities if interpreted correctly.

The essence is simple: when the price is moving down, but each new low is higher than the previous one, and each high is also higher — this is a falling wedge. Two trendlines converge at the top, as if squeezing the price. At first glance, it looks like a bearish pattern, but in reality, it often signals a reversal to the upside.

What should you pay attention to when forming a falling wedge? First, volume should decrease as the price compresses within the wedge. This indicates that the bears are losing strength. Second, you need to wait for a genuine breakout — when the price closes above the upper trendline of the wedge on increasing volume. That moment is the signal.

How do I usually set up my position? I enter when the candle closes above the upper trendline. I place a stop-loss just below the last minimum inside the wedge — this is a logical point if the pattern fails. The first target is at the height of the wedge, projected upward from the breakout point. The second target is a higher resistance level.

A falling wedge works well because it shows when selling pressure is exhausted. The price can no longer fall as low as before, which means the balance of power is shifting. When a breakout occurs, it often signals the start of a significant upward move.

I like to catch these moments across different timeframes. On daily charts, a falling wedge provides more reliable signals, but it also works well on 4-hour charts. The main thing is not to rush into the trade before the actual breakout, or you might catch a false signal.

If you see a similar formation on a chart, it’s definitely worth monitoring. What patterns do you use most often in your trading?