Tuesday, July 12, 2011
A Wedge reversal of a weak trend may generate a strong trend
Often trading range days are weak trends with deep pullbacks. The price continues to make higher highs (b11,b28, b59) and higher lows (b17, b22, b49) etc. When such a trend has a Wedge reversal (W11,28,59), there is a good chance it will reverse the entire wedge. A strong breakout (b55-58) from an essentially horizontal movement on failure will produce a large move down. The reason for this is simple: The horizontal movement acts like BW and the breakout like a BW fBO.
The most important reason however, is that every new breakout on a trading range day that did not open with a large gap is far more likely to fail than to succeed.