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Chapter 14, Part IV. Wedge pattern. Page 4

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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    Description and Trading the Wedge

    There is a simple rule to estimate – will a wedge be reversal or continuation.

    If wedge direction coincides with the previous move – the more probable that it will be reversal. If wedge direction is opposite to the previous trend – more probable that it will be continuation.

    This is very simple to understand from the mechanics of a wedge. For instance, we know that the wedge is a model of exhausting. Since, its direction is opposite to the previous trend, that, say, upward (like on chart #2), hence this wedge is exhausting of sellers, hence – sellers should exhaust some time, and upward move will continue. In this case the wedge will have a continuation bias, relative to the previous move.

    If this is too hard for you – here is another simple rule. During wedge forming time exhaust those participants that direction of wedge is. So, if wedge is down – hence sellers will exhaust and buyers will win, the same is true for up wedge.

    Any wedge assumes breakout in opposite direction to it own direction. Although as usual, there could be wedge failings and different exceptions.

    Target of the wedge could be estimated with different methods. For example, some traders use as a target the distance of pattern’s first swing – so called height of pattern. They assume, that the market should move at least for the same distance after breakout – look at chart #2. But you may use any other tools for target estimation – for instance Fibonacci extensions, like those as the same chart. Market has hit 1.618 extension and then turns to retracement. As you can see, it works nicely here.
    Hamza Samiullah likes this.
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