Identifying the rising wedge pattern in an downtrendĪ rising wedge in a downtrend is a temporary price movement in the opposite direction (market retracement). This means that you can look for potential selling opportunities. This indicates a slowing of momentum and it usually precedes a reversal to the downside. The price is confined within two lines which get closer together to create a pattern. As the chart below shows, this is identified by a contracting range in prices. Identifying the rising wedge pattern in an uptrendĪ rising wedge in an uptrend is considered a reversal pattern that occurs when the price is making higher highs and higher lows. This lesson shows you how to identify the rising wedge pattern and how you can use it to look for possible selling opportunities. There are two types of wedge pattern: the rising (or ascending) wedge and the falling (or descending wedge). The point I’m trying to make is that technical analysts get painted with too broad a brush and the maniacal, rotten apples give the sane ones a bad name.The wedge pattern can be used as either a continuation or reversal pattern, depending on where it is found on a price chart. But I’m no less skeptical of somebody reading financial statements and turning their analysis into market beating results. Yes, the majority of technicians fail to beat the market, but one can just as easily look at the results from mutual fund managers and throw fundamental analysis into a waste basket. To be clear, I’m skeptical of somebody’s ability to look at a chart and turn that analysis into market beating results. This distinction is really important and easily forgotten when we’re endlessly bombarded with the nonsense I’ve just shared. To me, technical analysis is not about predicting the future, but about managing risk. regional surface temperature of the Pacific Ocean… Those who owned S&P 500 stocks only when both the index and its cumulative advance-decline line were below their 50-day moving averages, as is currently the case, would have lost about 50% since 2012, according to FBN Securities.Īnd finally, stuff like this exists, which shows stocks vs. Here is another example from an article yesterday in the Wall Street Journal with the headline “Technical Analysts are Getting Nervous About This Market.” It included the following statement: A close below 17,992 would be very bearish. The Head & Shoulders Top with the neckline acting as resistance comes on top of a potentially bearish Elliot Wave irregular flat pattern and the fact that the index is now backing off from the old 2015 highs. Here’s a recent “Red Alert” example from HSBC: In addition to some of the crazy artwork, the patterns they’ll cite have names that sound ridiculous to the laymen a rising wedge, head and shoulders, three peaks and a domed house, etc. They’ll draw a few dozen lines, waves and retracements, and use a handful of oscillators. These outrageous claims are provided by technicians that abuse the charts. If stock prices are driven by earnings, how can a chart provide any insight? Well, yea, stocks are driven by earnings in the long-run, but in the short-run they’re driven by sentiment, which can be observed by measuring supply and demand.Īnecdotally, nonsensical forecasts seems to permeate from technical analysis way more than fundamental analysis, which is the main reason it often gets ridiculed (By the way, I’m not suggesting nonsensical forecasts aren’t ever driven by fundamental analysis, Dow 36,000 is a great example). It doesn’t make sense to them that you can look at past price movements and determine future price movements. There are a lot of people who don’t believe in the merits of technical analysis. Here’s Why Technical Analysis Gets a Bad Rap
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