Classic Pattern
Implication
A Continuation Wedge (Bullish) is considered a bullish signal. It indicates a possible continuation of the current uptrend.
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.
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.
We Always Have A Featured Event And The Lesson, Scan And Setup Instructions
Pattern Scan Features And Historical Performance Lesson And How You Use It!
If "Classic Patterns" is selected then the Pattern Duration criteria is enabled. This allows the investor to restrict the search to patterns that formed over a minimum or maximum number of days. Technical Analysis publications often anticipate that if a stock exhibits the price movement suggested by a classic pattern, this will occur within a time period equivalent to the duration of the pattern. If the anticipated price movement does not occur within that time period, then the pattern may have broken down and the suggested price movement may not occur after all. This means that longer patterns anticipate possible price movement over a longer term, and shorter patterns anticipate possible price movement over a shorter term. The investor might set this criteria based on the desired trading horizon.
This criteria is enabled if "Classic Patterns" or "Short-term Patterns" is selected. The trend leading into the pattern is often referred to as the "inbound trend". Many patterns indicate a reversal or continuation of this prior trend. Therefore it is useful for the investor to ensure that the prior trend was well-established.
Some technical analysts prefer an inbound trend that is at least as long as the pattern itself. In this case, if an investor is specifying a pattern duration of at least 30 days, then the investor might also want to specify an inbound trend duration of at least 30 days. The investor should note that it is not always necessary to have an inbound trend that is at least as long the pattern. In many cases, an inbound trend can be considered well-established if it is a shorter but strong rally or decline.
Possible Percentage Price Move
This criteria is enabled if "Classic Patterns" is selected. Technical Analysis publications often indicate that classic patterns anticipate price movement that is equivalent to the "height" of the pattern. The "move" refers to the amount the price will move away from the breakout price defined by the pattern.
Based on this concept, patterns can be selected based on the possible price move that they suggest, as a percentage of the breakout price defined by the pattern. The investor should note that the Possible Percentage Price Move is based on the breakout price defined by the pattern, not on the current price of the stock.
The investor should also note that the Possible Percentage Price Move is not a guaranteed prediction. Technical Events™ and the possible price movement that they suggest should be used as additional information in a more comprehensive research process about the instrument.
