Enis Taner, Global Macro Editor at RiskReversal.com, explains how to identify Wedge Patterns and what they mean.
Glossary of Terms
A chart pattern in which a stock falls to a trough, rises, and then falls to that same trough again. This is considered to be a bullish indicator.
A chart pattern in which a stock rises to a peak, falls, and then rises to that same peak again. This is considered to be a bearish indicator.
The performance of a stock as it falls. A stock in a downtrend will make a series of lower highs and lower lows.
Head and Shoulders
A pattern in which a stock rises to a peak before falling, then rises to a higher peak before dropping, and then rising to a third peak that is not as high as the second before falling. This is considered to be a bearish pattern. (On the other hand, if the pattern is turned upside-down — with the stock falling to three different troughs — then the pattern is considered to be bullish.)
A stock's performance relative to the overall market.
A level that a stock is not expected to rise above.
A stock's change in trend. A stock in an uptrend can undergo a reversal and enter a downtrend, and a stock in a downtrend can undergo a reversal and enter an uptrend.
Short Interest Ratio
This number is calculated by dividing the number of short positions in a given stock, or bets that the stock will fall, by the average daily trading volume. It indicates how bearish Wall Street is on a given stock.
A level that a stock is not expected to fall below.
The range of price levels that a stock is trading in. The top of the range is typically considered "resistance," and the bottom is "support." If this range is "well-defined," then the stock is not expected to exit this range unless it is impacted by a major catalyst.
The performance of a stock as it rises. A stock in an uptrend will make a series of higher highs and higher lows.