FAQs Frequently Asked Questions
A wedging stock is a tricky price formation that must be interpreted correctly. Many seasoned investors often misinterpret this unusual pattern. It essentially shows higher price on decreasing volume, thus creating a wedge, where one can observe a sluggish or sloppy price increase (as opposed to a vigorous price increase) denoted by a mildly uptrending line along the lows of the price bars, and a downtrending line along the highs of the volume bars, denoting decreasing volume that is not in pace with the sluggish or sloppy price increase.
This usually occurs over a period of several days or more, not just 2 or 3 days, though should be taken in context with the overall chart pattern. In other words, if the stock has had a serious break to the downside, then moves mildly higher on decreasing or low volume over even just a few days, that can be a sign that another sell off in the stock is about to occur.
If the stock is rising in price nicely, then shows wedging over a period of just a few days, this is a possible sign that the stock will rest, or retrace a small bit to correct its wedge.
If the stock is in a basing pattern, a wedge lasting just a few days may not be any clue that the stock must correct this wedge this it is in the middle of a basing pattern where there is liable to be more chaos in the pattern.
|First published:||10 Mar 2012|
|Last updated:||13 Mar 2012|