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Wedge

Trending is defined as higher highs and higher lows, or lower highs and lower lows. Eventually the trending becomes so expected by market participants that its corrections are shorter and shallower. And occasionally the trending becomes so expected that it runs out of sponsorship, and each new extreme is also shorter and shallower. The resulting pattern forms a WEDGE.

  1. Correcting
  2. Trending
  3. False break
  4. Breakout

 

 

Volume declines as the WEDGE’s develops. Volume should be slowest when the WEDGE’s last extreme forms, as the trend runs out of sponsorship. Without too much delay, a sharp reversal on very heavy volume makes the first attempt to reverse the trend.

WEDGES are most likely to produce a sustainable reversal when they exceed a prior extreme during their formation. Ending at a prior extreme, or beginning after a prior extreme is broken, may still produce a reversal attempt, but usually not one that is sustainable.