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Wedge Plays! (WEDGES)

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Wedge Plays! (WEDGES)

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Soapy Bubbles
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02/11/11 4:58 PM
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Re: #6: @Soapy Bubbles - F - Wedge Breakdown
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Wedge Plays! (WEDGES) RSS Feed

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Created
01/24/11
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Wedge Chart Pattern (Bullish)

Implication

A Continuation Wedge (Bullish) is considered a bullish signal. It indicates a possible continuation of the current uptrend.

Description

A Continuation Wedge (Bullish) consists of two converging trend lines. The trend lines are slanted downward. Unlike the Triangles where the apex is pointed to the right, the apex of this pattern is slanted downwards at an angle. This is because prices edge steadily lower in a converging pattern i.e. there are lower highs and lower lows. A bullish signal occurs when prices break above the upper trendline.

Over the weeks or months that this pattern forms the trend appears downward but the long-term range is still upward. Volume should diminish as the pattern forms.

Falling Wedge Bullish Pattern

Trading Considerations

Pattern Duration

Consider the duration of the pattern and its relationship to your trading time horizons. The duration of the pattern is considered to be an indicator of the duration of the influence of this pattern. The longer the pattern the longer it will take for the price to move to the Target. The shorter the pattern the sooner the price move. If you are considering a short-term trading opportunity, look for a pattern with a short duration. If you are considering a longer-term trading opportunity, look for a pattern with a longer duration.


Target Price

The target price provides an important indication about the potential price move that this pattern indicates. Consider whether the target price for this pattern is sufficient to provide adequate returns after your costs (such as commissions) have been taken into account. A good rule of thumb is that the target price must indicate a potential return of greater than 5% before a pattern should be considered useful. However you must consider the current price and the volume of shares you intend to trade. Also, check that the target price has not already been achieved.

Criteria that Supports

Volume

Volume should diminish as the pattern forms.

Criteria that Refutes

Moving Average

The penetration of the 200-day Moving Average by the price is a false bear signal.

Rising or Stable Volume

Volume should diminish as the pattern forms. If volume remains the same or increases this signal is less reliable.

Underlying Behavior

In this pattern prices edge steadily lower in a converging pattern i.e. there are lower highs and lower lows indicating that bears are winning over bulls. However, at the breakout point the bulls emerge the victors and the price rises.


Although it appears things are changing and the "BULL" is lurking, this pattern is typically "corrective" in nature to a larger trend or pattern. These wedges can typically retrace 50-65% of the FALL before it resumes the primary trend.

Wedge Chart Pattern (Bearish)

Implication

A Continuation Wedge (Bearish) is considered a bearish signal, indicating that the current downtrend may continue.

Description

A Continuation Wedge (Bearish) consists of two converging trend lines. The trend lines are slanted upward. Unlike the Triangles where the apex is pointed to the right, the apex of this pattern is slanted upwards at an angle. This is because prices edge steadily higher in a converging pattern i.e. there are higher highs and higher lows. A bearish signal occurs when prices break below the lower trendline.

Over the weeks or months that this pattern forms the trend appears upwards but the long-term range is still downward. May be entered from below as well.


rising wedge

 

Trading Considerations

Pattern Duration

Consider the duration of the pattern and its relationship to your trading time horizons. The duration of the pattern is considered to be an indicator of the duration of the influence of this pattern. The longer the pattern the longer it will take for the price to move to the Target. The shorter the pattern the sooner the price move. If you are considering a short-term trading opportunity, look for a pattern with a short duration. If you are considering a longer-term trading opportunity, look for a pattern with a longer duration.


Target Price

The target price provides an important indication about the potential price move that this pattern indicates. Consider whether the target price for this pattern is sufficient to provide adequate returns after your costs (such as commissions) have been taken into account. A good rule of thumb is that the target price must indicate a potential return of greater than 5% before a pattern should be considered useful. However you must consider the current price and the volume of shares you intend to trade. Also, check that the target price has not already been achieved.

Criteria that Supports

Volume

Volume should diminish as the pattern forms.

Criteria that Refutes

Moving Average

The penetration of the 200-day Moving Average by the price is a false bull signal.

Rising or Stable Volume

Volume should diminish as the pattern forms. If volume remains the same or increases this signal is less reliable.

Underlying Behavior

In this pattern prices edge steadily higher in a converging pattern i.e. there are higher highs and higher lows indicating that bulls are winning over bears. However, at the breakout point the bears emerge the victors and the price descends.

 

 This forum is for WEDGE PLAYS ONLY. Pennants and triangles are included since they are special cases of the wedge. All exchanges are welcome and please illustrate/explain your play.

Need a wedge to talk about? If so, try FINVIZ for ideas:

 

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