Daily Nifty 50 setups

Wonderful

Posted by: skaramoosh

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Wedges are typically triangles that are sloping up or down, with the trend line and the channel line converging. But, any three push pattern with reversals can qualify as a wedge because the forces behind these patterns are the same. With each push/leg, the market is attempting a BO and each reversal is pressure in the opposite direction. If the market has attempted BO in one direction thrice and failed, it typically probes for a price equilibrium in the opposite direction. All the following can be considered as wedges:

• Wedge with converging lines
• 3 pushes in one direction in a channel: typically a spike and channel trend ends after third push after which traders look for reversal. There can be a transition into a broader channel, TR, or even MTR depending on the context.
• Double top and a failed BO above the top
• Double bottom and a failed BO below the bottom

Wedges function as both reversal [wedge tops and bottoms] and continuation patterns [wedge flags]. For wedge top and bottom reversals, I look for increasing pressure in the opposite direction. Overlap of legs, converging lines and reversal attempts coming after fewer bars increases pattern reliability and the odds of BO in the opposite direction go up.

The wedge flags, which are TRES patterns, are forming after a BO in a given direction. Consider a wedge bear flag in a bear trend. Unless the PB rally is very strong, one can bet on the bull reversal attempt to fail (market inertia) and the bear trend to resume with a break below the wedge bear flag. One can also see the wedge bear flag as L3 sell setup.

For me, it's acceptable for the wedge flags to not have converging lines. But for tops and bottoms, I want enough proof that the odds of market turning is high. Of course, the context trumps everything - context has to make sense for a reversal.

In this chart, the wedge bear flag formed after a BR BO from B19-B21. The prior BL leg was very strong and you never know in advance if the BR BO is just a PB or a reversal. The context was suggested at least a minor reversal. The BR BO was strong enough for a 2nd leg down but the BL trend was still the dominating feature of the day. Typically, after such a strong BR BO, it's better to wait for 2nd entry buy with the possibility of the rally failing at the prior high forming an MTR. Here, the rally tested the start of the BR BO, which was also the beginning of sell climax and although the PB from BR BO was deep, it was in a bear flag. The context supported an MTR here. The wedge bear flag can also be drawn using the highs of B25, B34, and B37, which makes the lines converging. I hope this helps!

Extremely helpful Skaramoosh! Many thanks for taking time for very detailed explanation.

Cheers,

Amol

Very nice analysis, thankyou just please check the alignment of bar numbering

Posted by: Amol

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Amazing to see you application of knowledge skills Darpan. I would like to know was there any particular way in which you studied or revised the video course. While I try to apply concepts taught by Al, I tend to miss few of them and realize it only when I look at your EOD analysis. 

Cheers!

Amol

Thanks Amol. I've read AL's Books and saw his video course once. But his Encyclopedia of Chart patterns was the most helpful of all. Would suggest everyone to go through it once after completing the video course. That along with everyday EOD chart analysis should suffice. Hope this helps!