Continuation Wedge Chart Pattern (Bullish)
Implication | Description | Trading Considerations | Criteria that Supports | Criteria that Refutes | Underlying Behavior | Statistics
Implication
A Continuation Wedge (Bullish) is considered a bullish signal. It indicates a possible continuation of the current uptrend.
Description
A Continuation Wedge (Bullish) consists of two converging trend lines. The trend lines are slanted downward. Unlike the Triangles where the apex is pointed to the right, the apex of this pattern is slanted downwards at an angle. This is because prices edge steadily lower in a converging pattern i.e. there are lower highs and lower lows. A bullish signal occurs when prices break above the upper trendline.
Over the weeks or months that this pattern forms the trend appears downward but the long-term range is still upward. Volume should diminish as the pattern forms.
Trading Considerations
Pattern Duration
Consider the duration of the pattern and its relationship to your trading time horizons. The duration of the pattern is considered to be an indicator of the duration of the influence of this pattern. The longer the pattern the longer it will take for the price to move to the Target. The shorter the pattern the sooner the price move. If you are considering a short-term trading opportunity, look for a pattern with a short duration. If you are considering a longer-term trading opportunity, look for a pattern with a longer duration.
Target Price
The target price provides an important indication about the potential price move that this pattern indicates. Consider whether the target price for this pattern is sufficient to provide adequate returns after your costs (such as commissions) have been taken into account. A good rule of thumb is that the target price must indicate a potential return of greater than 5% before a pattern should be considered useful. However you must consider the current price and the volume of shares you intend to trade. Also, check that the target price has not already been achieved.
Criteria that Supports
Volume
Volume should diminish as the pattern forms.
Criteria that Refutes
Moving Average
The penetration of the 200-day Moving Average by the price is a false bear signal.
Rising or Stable Volume
Volume should diminish as the pattern forms. If volume remains the same or increases this signal is less reliable.
Underlying Behavior
In this pattern prices edge steadily lower in a converging pattern i.e. there are lower highs and lower lows indicating that bears are winning over bulls. However, at the breakout point the bulls emerge the victors and the price rises.
Although it appears things are changing and the "BULL" is lurking, this pattern is typically "corrective" in nature to a larger trend or pattern. These wedges can typically retrace 50-65% of the FALL before it resumes the primary trend.
Statistics
Percent of successful formations – 81% Average rise of successful formations – 46% Likely rise – 20% Failure rate - 37% Average time to throwback completion – 11 days
What is the Trending123.com Pattern Recognition Scan? The Trending123 Pattern Recognition Scan is one of the most interactive and informative tools available to subscribers, and it’s accessible 24 hours a day right here on Trending123.com. Visit What The Trending123.com Pattern Scan Searches For!
And just to make sure you have all the information you need to use this tool successfully (and profitably!), John Lansing has created multimedia tutorials that walk you through every aspect of this dynamic tool. Check out video tutorials on the following topics: Visit Getting Started!
