Wedges

Question 1

When the market makes three pushes in one direction and then creates a reversal
setup that triggers the reversal trade, the first target is the beginning
of the pattern, and the next is a measured move based on the height of the
pattern.

Answer 1

For example, if there is a wedge top where the third push up ends with a
strong bear reversal bar, and the next bar trades below the reversal bar, the first
target is a test of the bottom of the wedge (the bottom of the pullback from the first
push up), and the next is a measured move down, based on the height from the bottom
to the top of the wedge.

Question 2

Three-push patterns often contain large trend bars and create consecutive climaxes.
If the pushes are strong one- to three-bar spikes, traders will see them as
climaxes.

Answer 2

For example, if there is a strong bear spike, and a pullback, and then
another strong bear spike, traders will wonder if the pullback is the final flag in
the bear trend and if the consecutive sell climaxes will be followed by a bigger
pullback.

Question 3

A wedge bull flag points down, whereas a wedge reversal at the top of
a bull trend points up. A wedge pullback in a bear trend points up, but a wedge
bottom in a bear trend points down

Answer 3

Also, wedge flags are usually smaller patterns,
and most last about 10 to 20 bars. Since they are with-trend setups, they don’t have
to be perfect, and many are subtle and look nothing like a wedge, but have three
pullbacks. A reversal usually needs to be at least 20 bars long and have a clear trend
channel line to be strong enough to reverse a trend.

Question 4

Trends often end with a test of the extreme, and the test often has two legs,
each reaching a greater extreme (a two-legged higher high in a bull trend or lower
low in a bear trend). The first extreme and then those two legs make three pushes,
which is a well-recognized reversal setup with many names. Sometimes it takes
a wedge shape (an ascending triangle in a bull trend or a descending triangle in
a bear trend), but usually it does not.

Answer 4

For simplicity, think of these three-push patterns as wedges since
most of them end in a climactic wedge-like point. Remember, a wedge is simply
a trend channel where there are three pushes and often the trend line and trend
channel lines converge. A trend line and trend channel line in a three-push pattern
can be parallel like a stairs pattern, convergent like a wedge, or divergent like an
expanding triangle. It does not matter because they all behave similarly and you
trade them the same. They