24 Oct 2017 Continuation Patterns Continued
Wedges develop similar to triangles, however the fourth minor reversal of the major trend is such that both minor trend boundary lines slope either up or down. A rising wedge is a bearish pattern where both boundary lines slope up. Prices usually break out on the downside and take out that low point that first started prices up in the bear market rally. The measuring objective is therefore for prices to move lower than reversal point 1. A falling wedge is a bullish pattern where prices move up to penetrate and to close above the down sloping boundary lines. Prices should break upward through the boundary line and prices are expected to move higher than the uppermost point in the wedge.
Example Falling Wedge – Billiton:
Billiton made a high on 24 January 2017 of R249. The first reversal to point 2 took the price down to R192. It rallied to R227, point 3. Prices fell again to point 4 at R186, lower than point 2. On the 3rd of July the price broke out of the falling wedge at R205 where the trader will buy, go long. It reached R249 on 5 September for a profit of R44 per share.
The Flag is a dynamic and potentially very profitable price pattern. Flags occur within the course of a virtual straight-line price move. They mark a half way, breath catching, resting place before the trend resumes. Flags normally slope against the trend. In an uptrend, several low volume, small range down days occur. In a downtrend, the flag is composed of several narrow-range up days. A flag seldom lasts more than five days before a resumption of the trend occurs. The measuring objective is determined by adding the distance from the first break-out to the top of the flag, to the new break out level from the flag.
Example – Anglo American:
On 25 July Anglos broke out of a downtrend with a sharp move up from R190 to R226 on 7 August. Over the next few days there were a few minor corrections in the opposite direction than the trend. It broke upwards out of the flag formation at R216 on 16 August where traders should buy or open long positions. Anglos reached the measuring objective of R252 on 3 October where profits can be taken. It looks like a new flag is busy forming at the end of October.