Technical analysis II
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69400000
16. Wedge formations
If you draw trend lines along both the bottom and top of a share price chart, you will sometimes get a trend channel and you'll sometimes get a wedge shape similar to the one below.
A rising wedge

- According to the theory, if the wedge is pointing upwards, as in our example, the share price will fall when the price line cuts across the lower line of the wedge.
- If the wedge is pointing downwards (a falling wedge), the share price will rise when the price line cuts across the upper line of the wedge.
- If the wedge is level - in other words not pointing up or down - then this is a 'consolidation' pattern and you can expect the trends to continue. (i.e. no reversal)
Notice that wedge formations take place over a period of 3-4 weeks. This is because they occur as reversals of intermediate and minor trends. They will not be seen, except in unusual circumstances, as reversals to a major market trend.
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