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Some of my trading mentors express a preference for only trading chart patterns with horizontal boundaries.
They don't care for wedges (rising or falling).
The falling wedge is one of my favorite patterns.
Here is why:
They don't care for wedges (rising or falling).
The falling wedge is one of my favorite patterns.
Here is why:
As with all classical chatting patterns, they have a boundary structure and a price destination based on the width - the distance of the mouth from top to bottom.
Oftentimes, price is just making a round trip to the top of the wedge mouth.
Oftentimes, price is just making a round trip to the top of the wedge mouth.
According to Edwards and MaGee, chart patterns also have a timing element - they often breakout at 66 to 75% of their construction.
(That is something not found in rectangles, flags and h&s patterns)
Let's use TWTR as an example from these past few weeks:
(That is something not found in rectangles, flags and h&s patterns)
Let's use TWTR as an example from these past few weeks:
Since the end of May, $TWTR has been wedging down, it wasn't fully apparent until the low ome month later on June 29th.
But, once the pattern was established, we now have all the information needed for a trade.
- Stop point
- Profit target
- Timing -- for options
But, once the pattern was established, we now have all the information needed for a trade.
- Stop point
- Profit target
- Timing -- for options
A roughly 64 day pattern.
64 × 0.66 = 42.4 or 42 days for an early breakout.
This helps avoid chasing false breakouts.
My mentors prefer horizontal patterns because they like clearly defined stops, but that June 29th low with upward rotation is good for me.
64 × 0.66 = 42.4 or 42 days for an early breakout.
This helps avoid chasing false breakouts.
My mentors prefer horizontal patterns because they like clearly defined stops, but that June 29th low with upward rotation is good for me.
Now, there is one thing to keep in mind with wedges.
They have a tendency to 'bleed' when forming the low.
This is why you should wait for a wedge to fully form before entering a position.
They have a tendency to 'bleed' when forming the low.
This is why you should wait for a wedge to fully form before entering a position.
So, if you have spotted a wedge, unless you are sure, wait!
Price can bleed below the lower boundary, only to wick back! Once that trap forms though, it is one of my FAVORITE patterns.
Breakouts can be explosive and trend can follow through with lucrative results.
Price can bleed below the lower boundary, only to wick back! Once that trap forms though, it is one of my FAVORITE patterns.
Breakouts can be explosive and trend can follow through with lucrative results.
