Video 24 A, B, C, D & E: Wedges Flashcards
A Wedge is a contracting Triangle that is sloped up or down
List of Reversal Patterns:
A Wedge Bear Flag is a Pullback in a Bear Trend
A Wedge Top is a Reversal of a ______________
Bull Trend
So there are three pushes up. The trend line and the trend channel line are converging.
A Wedge Top is a Wedge reversal
A Bull Channel is almost always a Bear Flag on a higher time frame chart.
A Bull Channel has a __% chance that it will get a Bear Breakout
75%
Therefore, a Bull Leg is what will eventually become a Trading Range
A Wedge is simply a __________, that is sloped upward or downward.
Can be nested, which is ____________ of ___________ ones.
Triangle.
Smaller ones inside of larger ones
3 rallys with pullbacks are distinctive of wedges.
The market keeps trying to break to the upside and failing.
Wedge is a Major Trend Reversal.
You expect the market to fail.
A Wedge Bull Flag is a pullback in a Bull Trend.
Expect the market to ________________
Resume
A Nested Wedge has a __________ probability of leading to a reversal
Higher
Small Pullback (PB) Bull Trend is a FOMO trend, because ….
Bulls buy for momentum, rather than fundamentals. They’re buying because the price is up and will continue to go up. Because the pullbacks are small.
Once the momentum up ends, the Crowded Trade becomes clear and Bulls quickly exit in a panic. It only takes a few bars down to make all of the traders that bought the wedge up to be now holding losing positions and will be quick to exit.
A Wedge Bottom is a triangle that is sloped down (3 legs, both lines falling)
Bear trends are always forming Wedge Bottoms. Bull trends are always forming Wedge Tops
If you’re looking for a Wedge Bottom, you want overlap. You want the 2nd leg pullback from the 2nd leg down to go above the low of the 1st leg down.
A Pain Trade is…
A low probability event that just goes on a long, long time.
Pain Trades usually have at least Two Legs
Basically, the bears FOMO buy and the bulls can’t believe it.
The minimum requirements for a Wedge are…
A type of Triangle that has three pushes up or down.
As soon as i see three pushes, expect a Wedge Top.
Higher probability of reversal if the lines are converging. (But not necessary)
Define Triangle
Mostly sideways Wedge
The flatter the channel, call it a triangle and __% of the tiem you get a bear breakout
50% chance. if it’s a wedge, then it becomes a 75% chance.
Wedges are common and perfect ones are rare, and hardly look like wedges at all.
Most don’t look quite right. A double bottom with a breakout below it is a type of a Wedge
Every point is a possible location where I can enter a line. I need 2 points for a line.
Some with have overshoots, some undershoots.
Choose the line with overshoots because it is more typical of what the market is doing.
Oh, the last point can be an undershoot.
Anytime you see three reversals, you have to be thinking a possible _____
Wedge.
When you have multiple choices for lines, you want to choose the one that highlights what the market is doing better. Because…
It help you think about what to do next.
Typically, when the market tries to do something 2, 3 or 4 times, it gives up and does the opposite. You often get a ___________________
Reversal.
One side is trying to get the market to go in one direction and they’re failing. So eventually they give up. Then the market tries to do the opposite, tries to rally.
The closer a Wedge look ideal…
The more that Traders and Computers will trade it.
Look for Breakouts Bars in a Wedge, because…
At some point, one side will give up. they decide that these strong breakouts are not working, so they give up. The reversal attempts are minor and part of a flag.
Wedges: Al Likes to connect the 1st point with the 3rd point, which means the 2nd point is an overshoot.
Al likes the reversal to be taking place at a line.
Many Spike and Channel trends end in Wedges
As soon as there are two reversals, draw line to create channel.
Watch to see the next touch reverses up and end the 3rd push down
AS soon as there are two reversals, draw a line to create channel
True or false: A small overshoot is a Buy Climax?
True
If Bulls eager to buy Wedge, you get an undershoot on third push that creates a higher low.
This is a variation of a wedge. The market tri to get a bear BO 3 timesand failed. Then tried the opposite direction.
Three pushes up or down are not enough. They have to be strong compared to the other bars or legs.
Context (The bars to the left) has to make sense for a reversal. Otherwise the market will only go sideways. if they are simply part of a trading range, there is nothing to reverse.
When the pattern is more horizontal like a trading range, it’s closer to a __% chance of a measured move (up)
60%. I can also look at it as a DB PB or BO PB. Head and Shoulder Bottom Bull Flag.
In this photo, there are man consecutive bull bars, Taller legs, Increasing buying pressure in TR so bull BO likely.
Strong Trends are always forming Wedge Bottoms and not a reason to look for a reversal.
Tight Bear Channel is a BO on higher time frame.
Only sell and not look to buy.
Reversals are simply profit taking.
Not attempt at bull trend.
Other examples of not buying a Wedge in a trend….
Legs don’t overlap (Gaps). So bears trend is too strong to buy.
No strong bull trend bars (Buying Pressure) (Where are the bulls)
Lines not convergent
In any bar counting, start count over when strong breakout
Symmetry is important in Wedges. Why?
If the spacing between legs is too different, many computers will not treat it as a Wedge Top.
In this example, 21 bars between legs 1 and 2. Only 7 bars between legs 2 and 3.
When there is a strong (BULL) breakout, start the count over.
Whenever there is a Gap in my Wedge, the channel is usually too tight to be looking for a reversal.
The example has convergent lines, but Gap below 1st Leg.
Wedge Bottom usually needs overlapping legs (Stairs) to be reversal
Indicates some buying pressure.
A Gap means strong bears. A Gap shows that limit order, scale in bulls are losing money. So bulls are too weak to create reversal.
Channel is tight, not broad. No big consecutive bull trend bars, so not enough buying pressure for reversal. Best bulls should expect is Minor Reversal and TR
You often get a Lower High Major Trend reversal (LH MTR) when there is a tight trading range after a ____________________.
It usually comes as some kind of a Double Top
Bull Trend
The probability, like most MTR is low.
Each leg in a Wedge Bottom is one or more bear bars followed by doji or bull bars.
When is a Bear Trend, look to sell every reversal attempt
A Parabolic Wedge has three consecutive buy climaxes (BO’s)
Legs do not overlap. Tight channel (small pullbacks)
A Parabolic Wedge has gone too far too fast, and computers will have to reduce risk.
It’s very common when you have a sell or buy Climax, for the market to go sideways, instead of reversing.
Whenever the market follows a less likely path, expect:
Accelerated path (Fast Breakout)
2 Legs
Measure Move
A breakout is a “push” as in one of the 3 pushes in a wedge
Small overshoot on 3rd push is a…
Buy Climax
Think, “Instead of finding buyers for the bull breakout, it is finding sellers.”
Three pushes are not enough. They have to be strong compared to the other bars and legs.
Context has to make sense for a reversal. Otherwise, sideways is more likely than reversal.
In the photo, there is nothing to reverse. it is just part of a trading range. Computers will ignore and it will lead to more trading range. Traders will see this as legs in atrading range and expect more trading range.
Remember Wedges are reversals.
Tight Trading ranges have nothing to reverse.
Markets have inertia and continue what they are doing…so will stay in arange instea dof reversing.
Strong Bull trends are always forming Wedges.
It’s profit taking and the reversals are minor.
80%of reversal attempts fail and become bull flags, and bear scalpers keep losing.
In any bar counting, start count over when strong breakout.
Whenever you see a bull bar, then a bear bar or doji bar, that is a first leg…
Whenever you see a bull bar, then a bear bar or doji bar, that is a second leg..
A parabolic Wedge does not have much of a Wedge Shape, but it does have 3 pushes
Three consecutive buy climaxes (Breakouts)
Can be a tight channel
Legs often do not overlap
Instead of finding new buyers, it’s finding sellers.
often a parabolic curve.
Called parabolic because the line is steep. it’s increasing its velocity.
Parabolic Wedges are common on the open. Always look for Parabolic wedge when Micro Channel at start of session lasts 10 bars.
Parabolic Wedges need extreme moves to get exhausted
Never look for reversals if tight channel
A Tight Channel is a breakout on a Higher time Frame
Where is the evidence that the bears are strong? Where is the big bear bar?
A bear signal bar alone is not enough evidence to sell a wedge. there has to be evidence of selling pressure.
Resistance is a magnet and therefore a target. Profit taking at targets creates pullbacks
The most recent lower high is resistance.
Measured move up is a target
Failed Breakouts: Whenever the market follows an unlikely path, expect:
Accelerated Trend
2 legs
Measured Moves
Surprise breakouts can be strong.
60% chance a horizontal wedge will breakout (to the downside) (When lower highs and lower lows)
2 legs down
Breakout below Wedge Bottom is both surprise and possible 2nd attempt down. What is the percent chance that it will succeed?
50%
