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Like triangles, wedges define converging prices, although unlike a triangle, both boundaries of a wedge are slanted. For a rising wedge, the lower line is steeper than the upper line (Figure 5). The opposite is true for a falling wedge.

Like triangles, the price does not continue through the apex of the wedge. Breakouts normally occur about two-thirds of the way to the apex. Volume diminishes as price heads toward the apex and, like a triangle, jumps up on the breakout.

The breakdown from a rising wedge is a sign that the market is technically weak and prices will fall in earnest, especially if the broad market is already in a bear market. The diminishing volume during the final stages of the rising wedge indicates that the demand is usually just short-covering, with sellers backing away from the market. The lack of demand (indicated by the light volume) on the decline will usually cause a swift move to the downside. A breakout from a falling wedge is a signal that the market is technically stronger, although prices will tend to move sideways before rising. The breakout does not have a price objective based on this chart formation.

KEY REVERSAL TOP/BOTTOM

The key reversal is a very quick, very simple pattern that occurs frequently, either by itself or within other patterns. Generally, it arrives and completes during a single trading day and its significance is for the short term. Key reversal tops appear most regularly in thinly traded stocks that have made an active advance (Figure 6). The key reversal bottom is also known as a selling climax (Figure 7).

The key reversal top/bottom reaches a high/low that exceeds the previous day's high/low, but winds up closing near the low/high of the day. Extremely high volume usually accompanies it. The top/bottom pattern takes on more significance if it occurs after a long unbroken trend, or if the volume is abnormally large, or if its peak/trough is much higher/lower than the previous day's or if the closing price is below/above the previous day's closing. Typically, these types of reversal are accompanied by extremes in investor psychology in that investors are either euphoric or panicked. For the key reversal top, the bullishness is very high. The key reversal bottom is at the final stages of liquidation and extreme bearishness.