Is the falling wedge a bullish pattern?
No. Since 1995, US stocks detected with a falling wedge beat the same day's median stock over the next month 51 times in 100, and over three months 50 times; a coin flip gives 50. The interval around the monthly figure, 49.0 to 52.6, takes in 50, and no horizon clears the bar for a measurable edge. Only 6 in 100 reached the drawn target before the stop.
6 of 100 reached the drawn target before the stop
The paper
The full study: its data, method, robustness, limits and sources.
Opulence Alpha Research · Published Sep 25, 2026 · Data through Aug 21, 2026
Keywords: falling wedge, falling wedge pattern, does the falling wedge work, falling wedge breakout, falling wedge success rate, bullish wedge pattern·JEL classification: G11, G12, G14, C12, C58
- Universe
- The same for every study: 1,767 US common stocks in the 11 GICS sectors, 422 of them since delisted; S&P 500 members since 1996 plus large and mid-sized companies outside the index
- Period
- Every Wednesday from Jan 4, 1995 to Aug 19, 2026: 1,550 Wednesdays across 7,959 trading sessions
- Sample
- n = 1,764 stocks of the 1,767-stock universe; 1,361,444 formation detections, a median of 906 per Wednesday
- Outcome
- Return over the next 5, 21 and 63 trading sessions against the same day's median stock; whether the drawn target was reached
- Inference
- Date-clustered intervals; t on non-overlapping dates; proven only when |t| ≥ 3
1Introduction
A falling wedge forms when a stock's highs and lows both slope down but draw closer together, so each decline is shallower than the last. Chart manuals read the narrowing as a decline losing force and treat the wedge as a bullish setup, most often on a break above its upper line. This study asks whether US stocks on which the pattern detector recorded a falling wedge went on to beat other stocks over the next week, month and three months, and how often they reached the target the pattern draws.
2Data and method
2.1Sample design
Population and frame. The population is US common stocks listed on the NYSE and Nasdaq; funds, ETFs, trusts, preferred shares, warrants and units are excluded. The sampling frame is a fixed universe of 1,767 companies, drawn once when the platform was built and not re-sampled since, in two strata. Stratum 1 is a census of the S&P 500: every company in the index at any time since 1996 whose price history could be recovered, 1,027 companies of which 413 have since delisted; it holds 76% of the index's members in 1996 and at least 96% in every year from 2010. Stratum 2 is 740 large and mid-sized companies outside the index, selected in proportion to the market's sector weights from the stocks that passed a minimum share price of $15 and a minimum average daily trading value of $25 million; 9 of them have since delisted.
Sample. The unit of observation is a formation detection: one stock on one Wednesday on which the pattern detector recorded a formation. Weeks the platform's regime model flags as a likely change of market regime are left out, as are bars flagged as bad data. This study's sample is n = 1,764 stocks of the 1,767: 1,361,444 detections on 1,550 Wednesdays from Jan 4, 1995 to Aug 19, 2026, a median of 906 stocks with a formation per Wednesday. 217,945 detections (16%) come from the 420 companies that have since delisted. Every detection and every Wednesday carries equal weight.
Representativeness. Table 1 gives the sample by GICS sector beside the S&P Composite 1500: 7.9% of companies would have to change sector for the two to match exactly. By latest market value, 55% of the active companies are large (at least $10bn), 38% mid ($2–10bn) and 6% small. Because Stratum 2 was chosen from companies listed at construction, its history carries survivorship bias. Section 4 reads the result by market volatility.
Companies in this study's sample, of them those since delisted, the size of the active companies, the sample's share of stock-weeks and the sector's share of the S&P Composite 1500.
| Sector | Sample | Delisted | Large | Mid | Small | Stock-weeks | S&P 1500 |
|---|---|---|---|---|---|---|---|
| Information Technology | 283 | 67 | 122 | 76 | 18 | 13.5% | 12.7% |
| Financials | 255 | 59 | 114 | 74 | 8 | 14.7% | 17.2% |
| Industrials | 255 | 52 | 126 | 67 | 11 | 15.9% | 17.5% |
| Health Care | 237 | 47 | 92 | 81 | 16 | 12.3% | 10.9% |
| Consumer Discretionary | 209 | 39 | 69 | 87 | 12 | 12.4% | 12.9% |
| Energy | 105 | 30 | 39 | 31 | 5 | 6% | 4.7% |
| Consumer Staples | 101 | 38 | 40 | 17 | 5 | 5.9% | 4.9% |
| Materials | 95 | 34 | 35 | 24 | 2 | 5.6% | 5.1% |
| Real Estate | 84 | 10 | 40 | 32 | 2 | 5.9% | 6.9% |
| Communication Services | 80 | 31 | 28 | 13 | 5 | 3.9% | 3.3% |
| Utilities | 60 | 13 | 35 | 12 | 0 | 4.1% | 4% |
| All sectors | 1,764 | 420 | 740 | 514 | 84 | 100% | 100% |
Sample: n = 1,764 of the 1,767 companies. Size by latest market value for the 1,338 active companies with one: large ≥ $10bn, mid $2–10bn, small < $2bn. S&P 1500 shares count the constituents of the S&P 500, MidCap 400 and SmallCap 600 (1,506 companies, lists read Sep 25, 2026). Sectors are each company's current GICS sector.
2.2Signals
| Signal | Definition | Since | Wednesdays |
|---|---|---|---|
| Falling wedge | Two converging trendlines, both sloping down, across the highs and the lows; recorded as a bullish formation with a drawn target and stop | Jan 4, 1995 | 1,550 |
2.3Measurement
Outcome. The return from the close on the detection's Wednesday to the close 5, 21 and 63 trading sessions later, in excess of the S&P 500, compared with the same day's median stock, so chance is 50 in 100 on every date; and whether the price reached the formation's drawn target before its stop.
Each detection is scored on its Wednesday: a bullish formation is a hit when the stock beat the same day's median stock, a bearish one when it trailed it. The detector also records whether the price reached the formation's drawn target before its stop (21 sessions for bullish formations, 42 for bearish).
The t-statistic uses non-overlapping dates only. A result is called proven when |t| is at least 3, it held in at least 60% of years and it is large enough to matter; with 1,470 tests across the studies, a looser bar would pass dozens by luck.
Full data and methods3Results
Figure 1 reads each horizon. Falling wedges beat the median stock 50.5 times in 100 over the next week, 50.8 over the next month and 50.4 over the next three months. Every interval takes in 50, and none of the three readings is a measurable edge: a falling wedge was followed by an ordinary week, month and quarter.
Share of detections that beat (bullish) or trailed (bearish) the same day's median stock. The line at 50 is chance; the grey band is the range chance produces for this sample (95%, clustered by date).
Share of detections that reached the drawn target before the stop, by the pattern's stage at detection.
The further away the drawn target, the less often it was reached.
Out of every 100 falling wedges, 6 reached the drawn target before the stop within 21 sessions (Figure 2). Confirmed wedges, where price had already risen above the wedge's last high, reached it 20 times in 100; wedges still forming, 8; broken ones, 2 (Figure 3). The hits took 11 sessions at the median.
4Robustness
Table 3 splits the month-ahead result by the market's volatility on the detection date. Year by year, falling wedges beat the median stock over the next month in 19 of 32 years and trailed it in the rest; no horizon holds steadily from year to year.
Edge over 50 in points at 21 sessions, by the market's volatility regime on the detection date.
| Volatility regime | Detections | Edge, points |
|---|---|---|
| Low | 8K | 0.61 |
| Normal | 9.4K | -0.79 |
| Elevated | 6.4K | 2.46 |
| High | 3.7K | 2.43 |
| Extreme | 1.5K | 1.05 |
5Limitations
- The detector records a falling wedge only when volume, weighted toward the pattern's last day, is at least one and a half times its level in the 20 sessions before the pattern began. The study therefore measures only volume-backed wedges; wedges on lighter volume are not in it.
- Before costs. Averages exclude trading costs, taxes and market impact.
- Same-close timing. Returns start at the close the signal is computed from; a real trade would start later.
- Survivors among smaller companies. The non-index names were chosen from companies listed when the universe was built; no delisting returns are added.
6Conclusion
The falling wedge tells a story of a decline running out of force. Measured on the same day against the same day's median stock, stocks that showed one went on to an ordinary week, month and three months: they beat other stocks about as often as a coin flip would, and few reached the target the pattern draws. The narrowing of two trendlines describes a decline that has already slowed; it does not forecast what comes next.
References
- Bulkowski, T. N. (2005). Encyclopedia of Chart Patterns, 2nd ed. Wiley.
- Lo, A. W., Mamaysky, H. and Wang, J. (2000). Foundations of Technical Analysis: Computational Algorithms, Statistical Inference, and Empirical Implementation. Journal of Finance 55(4).
- Park, C.-H. and Irwin, S. H. (2007). What Do We Know About the Profitability of Technical Analysis? Journal of Economic Surveys 21(4).
- Benjamini, Y. and Hochberg, Y. (1995). Controlling the False Discovery Rate: A Practical and Powerful Approach to Multiple Testing. Journal of the Royal Statistical Society, Series B 57(1).
- Grinold, R. C. and Kahn, R. N. (2000). Active Portfolio Management, 2nd ed. McGraw-Hill.
- Harvey, C. R., Liu, Y. and Zhu, H. (2016). … and the Cross-Section of Expected Returns. Review of Financial Studies 29(1).
- Shumway, T. (1997). The Delisting Bias in CRSP Data. Journal of Finance 52(1).
Appendix A. Questions readers ask
- Does the falling wedge pattern work?
- Not as a forecast. Since 1995, US stocks detected with a falling wedge beat the same day's median stock over the next month 51 times in 100, against 50 for a coin flip. At no horizon measured is the relation strong enough to separate from chance.
- What is the success rate of a falling wedge?
- By the pattern's own target, 6 in 100 falling wedges reached it before the stop within 21 sessions. Against other stocks, 51 in 100 beat the median stock over the next month, indistinguishable from a coin flip.
- Is a falling wedge breakout more reliable?
- It reaches the drawn target more often, partly because price has already covered part of the way: confirmed wedges, where price had already risen above the wedge's last high, did so 20 times in 100, against 8 for wedges still forming. Taken together, falling wedges showed no measurable edge against the median stock at any horizon.
- How was the falling wedge measured?
- Every Wednesday from Jan 4, 1995 to Aug 19, 2026, each falling wedge the pattern detector recorded was compared with the same day's median stock over the next 5, 21 and 63 trading sessions, on the same universe of 1,767 US stocks every study uses.
Data availability and citation
Every figure in this paper is quoted from one frozen snapshot, published as JSON with the sample description, the robustness results and the test counts. The same snapshot feeds the research console, so the two cannot disagree.
Opulence Alpha Research (2026). Is the falling wedge a bullish pattern? Opulence Alpha Studies, Sep 25, 2026. https://opulencealpha.ai/studies/falling-wedge
Research, not advice. A measured tendency across hundreds of stocks is a nudge for any one of them, never a forecast of its price.