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Figure 13.5
Wedge Buy
Copyright 2000, TradeCast® Ltd. |
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Look to three days ago (see 1 on figure). It's high should be higher than the next two days, and its low should be lower than the next two days. |
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Then look to two days ago (see 2 on figure). Its high should be higher than the last trading day and its low should be lower than the last trading day. |
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Look to the last trading day (see 3 on figure). It should have the lowest high and the highest low of all three days. This is classic consolidation. |
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What is the market psychology behind this setup? First, you want the stock to still be in an uptrend, so you confirm a closing price above the 20-day moving average. |
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Then you want to see narrowing in the consolidation by confirming at least two "inner range" days. This just means that the range is constricting further and further each day. This shows you that neither buyers nor sellers are in control at this point. The consolidation is narrowing, which is always the prelude to a powerful breakout. |
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