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Nasdaq BeaterDescending wedge pattern in K-line chart
In candlestick analysis, a falling wedge is a common reversal or continuation pattern, usually appearing in a downtrend, suggesting that prices may soon reverse upwards. It consists of two converging trend lines, resembling a downward-sloping wedge.
Pattern composition:
- Upper trend line: Connects lower highs of price fluctuations, sloping downward.
- Lower trend line: Connects lower lows of price fluctuations, sloping downward and converging with the upper trend line.
- Convergence feature: The distance between highs and lows gradually narrows, and the volatility weakens.
Trading signal:
When the price breaks above the upper trend line, it indicates increasing buying power, and bulls may take over, presenting a potential buy signal. After the breakout, the upper trend line may turn into support.
A falling wedge does not always signal a reversal; sometimes, it may just be a correction within a downtrend. Observing the breakout direction and trading volume can help you more accurately judge the trend.
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