Example of a Wedge Breakout

Oct 9, 2019

In the example below, you can observe that on the lower boundary of the wedge , the peaks become slightly higher each time it comes down to the line. This has the effect of ensuring that none of the trades that are taken short in these regions can turn a profit. Similarly, on the upper boundary of the wedge , the same thing is happening with each of the peaks becoming progressively lower and trapping the higher level longs and pulling them down.

There is no way of predicting which direction the price will ultimately breakout. This will be determined by the net volumes that occur. In other words, if there is a greater build-up of short positions over the long positions, then the wedge will break up.