Wedges

When looking at long term patterns the identification tells us that something larger is coming to an end. But that does not mean its a short term trade. In fact long term patterns take their own time to complete and convert into a trade. The first indication is longer term. So the first time i did a video on the Tata Motors wedge was over a year back and then I used lines taking a longer time period than I did last week. The chart below shows the larger lines of a wedge and the upper line is at 378. The other thing with these patterns is that sometimes they have throw-overs, i.e. prices will go above the upper line before reversing or at the end point form a triangle for months. For these reasons traders need to wait for the right time to act on a long term structure. But should keep the chart on radar for when things develop. The more bullish argument that can be made is that the triangle is a running triangle and the current up move is impulse and can overshoot to 450 before we even get a top. The key will be waiting for prices themselves to reverse rather than predicting a top. Long term patterns take their own sweet time.

 

So looking at wedges the second wedge I have been proposing is of BSE IT index and it is already showing a throw-over the upper line. The trend reversal of the up trend is not yet signaled even as it remains in final stages. The CNX IT index has however not yet reached the upper line which is at 9230. This means that there might still remain upside to the sector before it reverses. But as there are throw overs there are also failures to reach the end point in some cases. The key will remain watching for a trend reversal by a break of a larger 40/50 day moving average.