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Technical Analysis Price Patterns Part 5
Wedge Formations
Wedge formations in are not only interesting as reversal or continuation patterns but are also good for recognizing an Elliott beginning or ending wedge impulse wave. So they will help to make a correct Elliott wave count in generally difficult circumstances.
Falling Wedge Reversal Pattern
The falling wedge exists as a reversing pattern in a falling trend and as a continuation pattern in a rising trend. The duration of the wedge should be a minimum of 20 bars; with fewer than 20 bars, it is considered a flag.
Figure 4.65: Falling wedge reversal pattern.
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Breaking out of a falling wedge is generally a bullish signal (figure 4.65). Rarely will you see the price breaking a falling wedge to the lower side.
Falling Wedge Continuation Pattern
A falling wedge continuation pattern in a rising trend is a price reaction in the up-going move.
The chance for a big profit is less than for a falling wedge reversal pattern because part of the up-move is already history (figure 4.66).
Figure 4.66: Falling wedge continuation pattern.
Pay attention to the rare falling wedge after the top of an up-trend.
In figure 4.67, the falling wedge from the top probably is the first reaction after a longer-term uptrend.
As a result the breakout to the upper side is more likely a temporary reaction against the new longer-term down-move.
Figure 4.67: Falling wedge after a top formation.
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