Wednesday, September 23, 2009

Rising Wedge - 5 minutes of thought

The rising wedge is a much maligned pattern.  I say this because I see it playing out pretty often.  typically a break to the downside is what happens.  The measure move is equal to the fat part of the wedge (on the bottom side). 

In this modern "tricky market" there are often false breaks, which cause some traders to place their money and then "stick with it".  After about 3%, fess up to yourself, and close the losing trade.   My experience in viewing hundreds of these play out is that if they move more than 3% the wrong way....CONSIDER it failed. 

The most common is the break to downside then retrace to the lower trend line.   These are awesome, because it they "stick" it should be a good move.  However, they may come back a few times to test that line, so be prepared for that

Several books and online guides seem to just copy each other, they state that rising wedges are hard to recognize and only seen after the fact.  Well in my best political meandering, let me put it this way.....BULLSHIT, these things are obvious.  Way more obvious than a cup an handle  and way more obvious than counting most Elliot Waves. 

Some references state that it must touch and bounce off the top and bottom line 3 times each.   Hmmmm, my experience is that 3 to the upside and 2 to the downside is way more common.  6 never happens from what I see....The 6th is a sled ride down.   

But lets not get too excited about the current wedges on the big indices.  They aren't quite "perfect".  I like to see them bounding off one and then going to the other, not pounding on the same line time and again.   They dont often make a bee-line for the other side, but a return to the same line is not as good.   But also cut these current wedges some slack....we are probably at a super cycle top, and we peered into Armageddon, and now that we avoided Armageddon, instead of caution, people have gained a false sense of security. 

I put diagrams on my blog. free bandwidth posting on other blogs of 2G is used up this month. 

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