Wedges and Other Three-Push Reversal Patterns
When the market makes three pushes in one direction and then creates a reversal setup that triggers the reversal trade, the first target is the beginning of the pattern, and the next is a measured move based on the height of the pattern. For example, if there is a wedge top where the third push up ends with a strong bear reversal bar, and the next bar trades below the reversal bar, the first target is a test of the bottom of the wedge (the bottom of the pullback from the first push up), and the next is a measured move down, based on the height from the bottom to the top of the wedge. All three push patterns are manifestations of the same underlying market behavior, regardless of the shape that the pattern takes. It does not matter if it is a wedge, a micro wedge, a parabolic wedge, a wedge with a fourth push, a wedge pullback in a trend or a trading range, a wedge trend reversal pattern, another type of triangle (including an expanding triangle), a triple top or bottom, a double top or bottom pullback, a head and shoulders top or bottom, or a failed breakout below a double top or above a double bottom. At some point, the trend traders give up trying for a strong breakout, and the reversal traders gain control of the market. A third consecutive reversal is usually enough for that to happen.
Three-push patterns often contain large trend bars and create consecutive climaxes. If the pushes are strong one- to three-bar spikes, ...