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Chapter 14, Part IV. Wedge pattern. Page 2

Discussion in 'Complete Trading Education- Forex Military School' started by Sive Morten, Dec 21, 2013.

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  1. Sive Morten

    Sive Morten Special Consultant to the FPA

    Aug 28, 2009
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    In general, a wedge is a market consolidation between sloping support and resistance lines. Price forms highs and lows in the same direction but pace of highs and lows forming is different. That’s why this kind of price action gets the form of a wedge:

    Chart #1 | GBP/USD Weekly

    Here you can see a perfect example of a falling wedge. See – although the market is forming lower lows and lower highs – they have a different pace and the highs move lower faster than the lows. The second important moment is that this is typical for perfect examples of wedges – the market shows precisely 5 swings inside the pattern. This is not absolutely necessary, but when it happens, the pattern becomes more reliable. After 5th swing the market should decide where it intends to go. Sometimes it gives us an early clue – see, the market has not quite reached the lower border of the wedge and turns up again. This is a bullish sign and happens very often in different triangle formations – such as wedges and triangles. Now let’s discuss the market mechanics of wedge pattern.

    Market mechanics

    Although a wedge could indicate as reversal or a pause in a long term move (such as on chart #1) – the mechanics will be the same, except the question of who will be the winner at the end. Wedge indicates the different strength of Sellers and Buyers. On chart #1, since the wedge has started to form, it means that a significant amount of sellers have stepped in and hold the market from any further upside move (initial swing down of the wedge pattern).
    #1 Sive Morten, Dec 21, 2013
    Lasted edited by : Mar 27, 2016
    knight270 and Hamza Samiullah like this.
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