Real Success Rates of the Falling Wedge in TradingReal Success Rates of the Falling Wedge in Trading
The falling wedge is a chart pattern highly valued by traders for its potential for bullish reversals after a bearish or consolidation phase. Its effectiveness has been extensively studied and documented by various technical analysts and leading authors.
Key Statistics
Bullish Exit: In 82% of cases, the exit from the falling wedge is upward, making it one of the most reliable patterns for anticipating a positive reversal.
Price Target Achieved: The pattern's theoretical target (calculated by plotting the height of the wedge at the breakout point) is achieved in approximately 63% to 88% of cases, depending on the source, demonstrating a high success rate for profit-taking.
Trend Reversal: In 55% to 68% of cases, the falling wedge acts as a reversal pattern, signaling the end of a downtrend and the beginning of a new bullish phase.
Pullback: After the breakout, a pullback (return to the resistance line) occurs in approximately 53% to 56% of cases, which can provide a second entry opportunity but tends to reduce the pattern's overall performance.
False Breakouts: False exits represent between 10% and 27% of cases. However, a false bullish breakout only results in a true bearish breakout in 3% of cases, making the bullish signal particularly robust.
Performance and Context
Bull Market: The pattern performs particularly well when it appears during a corrective phase of an uptrend, with a profit target reached in 70% of cases within three months.
Gain Potential: The maximum gain potential can reach 32% in half of cases during a bullish breakout, according to statistical studies on equity markets.
Formation Time: The wider the wedge and the steeper the trend lines, the faster and more violent the post-breakout upward movement will be.
Comparative Summary of Success Rates:
Criteria Rate Observed Frequency
Bullish Exit 82%
Price Target Achieved 63% to 88%
Reversal Pattern 55% to 68%
Pullback After Breakout 53% to 56%
False Breakouts (False Exits) 10% to 27%
Bullish False Breakouts Leading to a Downside 3%
Points of Attention
The falling wedge is a rare and difficult pattern to correctly identify, requiring at least five contact points to be valid.
Performance is best when the breakout occurs around 60% of the pattern's length and when volume increases at the time of the breakout.
Pullbacks, although frequent, tend to weaken the initial bullish momentum.
Conclusion
The falling wedge has a remarkable success rate, with more than 8 out of 10 cases resulting in a bullish exit and a price target being reached in the majority of cases. However, it remains essential to validate the pattern with other technical signals (volume, momentum) and to remain vigilant against false breakouts, even if their rate is relatively low. When mastered, this pattern proves to be a valuable tool for traders looking for optimized entry points on bullish reversals.
