Wedges and Targets
Wedge Patterns usually occur at the end of a move, but occasionally you will find a well-formed WEDGE in a sideways pattern. A wedge is created by a pair of trendlines that converge, and is similar to a TRIANGLE, except that both trendlines point in the same direction.
This pattern was quite well-behaved. Notice the three pushes to the upside. When you have a three-wave move, it is common for the first pullback to be .618% and the second .382%. The first pullback was accompanied by an oversold Stochastic. The second didn’t get oversold, but it was bouncing off a confirmed trendline.
Wedges are not the most reliable patterns, but this one gave several simultaneous signals that it was ending at point 5. First, it hit the upper trendline just as it reached yesterday’s high (green line.) Second, there was a well-formed DIVERGENCE between price and the Stochastic.
The third piece of the puzzle is a Fibonacci extension measurement. Extensions are when you measure a move in one direction and compare it to the next move in the same direction. If you take the distance from point 2 to point 3 and multiply it by .618, you will get the exact distance between point 4 and point 5. Three reasons to short for a quick five point profit.
Why five points? Because the normal target for a wedge is its beginning. The actual bottom came about a half hour later, at another divergence. Notice that the bottom occurred at the precise time when the two trendlines crossed. It’s amazing how often that will happen, but like much else in the magic of market geometry, you can’t count on it. But you try and trade it when you see it.
