TAGS:Wedge Formation,Rectangle Formation, Patterns,typical bearish rectangle,bullish rectangle,Triangle Formation,Flag formation AND Pennant formation
Wedge Formation
The wedge formation is a close relative of the triangle and the pennant formations. It resembles both the shape and the development time of the triangles, but it really looks and behaves like a pennant without a pole. The wedge is markedly sloped, and the breakout occurs in the direction opposite to its slope (see Figure 5.31.), but similar to the direction of the original trend. The signal we receive from the wedge formation is direction only. There is no reliable price objective. Depending on the trend direction, there are two types of wedges: falling (see Figure 5.31.) and rising.
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| Figure 5.31. Diagram of a falling wedge |
Rectangle Formation
Also known as a trading range (or congestion), the rectangle formation reflects a consolidation period. Upon breakout, it is likely to continue the original trend. Its failure will change it from a continuation to a reversal pattern. This pattern is easy to spot, as it can be considered a minor side-ways trend.
If it occurs within an uptrend and the breakout occurs on the upside, it is called a bullish rectangle. (See Figure 5.32.) The price objective is the height of the rectangle. As Figure 5.32. shows, the currency moves between welldefined, flat support and resistance levels. A valid breakout may occur on either side from this consolidation period. The price target (GH) is equal to the height of the rectangle (G'H), measured from the breakout point H. In the numerical example, the price objective is 1.6200, as the 100-pip difference between 1.6100 and 1.6000, measured from 1.6100.
If the consolidation occurs within a downtrend and the breakout continues the original trend, then it is called a bearish rectangle. (See Figure 5.33.) Asshown in Figure 5.33., the currency moves between well-defined, flat support and resistance levels. A valid breakout may occur on either side of this consolidation period. The price objective (HG') is equal in size to the height of the rectangle (GH), measured from the breakout point H. In the numerical example, the price objective is 100.00, as the 100-pip difference between 102.00 and 101.00, measured from 101.00.
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| Figure 5.32. shape1 Diagram of a typical bullish rectangle |
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| Figure 5.32. shape2 Diagram of a typical bullish rectangle |
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| Figure 5.33. Diagram of a typical bearish rectangle |
Do you like to read about others Trend Continuation Patterns like Triangle Formation click here or Flag formation AND Pennant formation click here
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