Tuesday, April 19, 2011

Failed Wedges

Wedges rarely fail, but when they do, they usually give a measured move to the other side of the wedge. The move from the LOD b24 to b40 was three pushes up and b40 both was the third push and the trigger of the wedge. When the price moved above it without first giving two legs down, it was a failed wedge that should be expected to go a measured move up.

Its important to note a few things about failed wedges.

  1. Wedges rarely fail and well formed wedges -- with strong overshoots clear bars and strong reversal bars almost never fail.
  2. If a wedge is triggered and moves at least two legs, the wedge condition is satisfied and if it then moves above the wedge its no longer a failed wedge and should not be expected to go to a measured move.
  3. Most failed wedges are usually channels or channel like moves and are not overreactions.
  4. True wedges represent extreme behaviors and these are unlikely to fail.
Whenever you see a channel that gives a wedge type move, it you trade it, remember that occasionally they fail and you should reverse your position and trade it to the measured move

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