Wedge

A wedge is a contraction in a stock's daily range. Each day will typically have a narrower range as it completes a shape that looks like a „wedge“ This compression in price over the course of several days to a couple of weeks may be followed by a strong breakout day. A wedge will look similar to this:

A wedge does not have to be exactly symmetrical. It may be tilted to one side or the other. For example:

Flag

The flag is similar to the wedge in that it is a consolidation pattern. Usually a flag forms after a strong run up or down in a stock. After this strong movement which can last several days, the stock takes a breather and may tend to trade sideways This is where a flag will often form on the daily chart. It should look something like this:

The flag will usually have a relatively light formation and smaller daily trading ranges. Typically a strong breakout will occur in the direction of the earlier trend. This is especially important if the flag forms at or near a recent or long term high for the stock The upper boundaiy of the flag serves as price resistance, and the lower boundary i$ support. A price breakout in either direction may be a good trade entry, especially when paired with analysis from the 1 to 3 day bar, and/or intraday trade setups(consoli­dation).

Consolidation of daily Highs and Lows

If you have 3 – 5 t daily highs or lows clustered together at the same price (daily consolidation) then you have the potential for a breakout day trade. Here is how it look for a buy setup:

New highs/lows

New highs and lows are important to watch for. This is signifying strength or weakness in a stock. The most significant arc all time highs and 52 week highs or lows. If you find a stock that is trading very near one of these areas (especially if you have several daily bars of consolidation), be ready for a day that may break through and run. Also, shorter term (6 to S week) new highs or lows can provide a substantial day trade or swing trade (several day) opportunity. These stocks may be traded on the actual day ofthe breakout or on the following day(s). Again, look at the 1 to 3 bar and intraday setups to determine when and where to enter The reason these work is that price is breaking through a significant and natural price support or resistance area. Other traders and fund managers aiso monito: and trade these longer term breakouts. This adds extra follow through and offers opportunities for day trading.

One variation on the new high or low setup lends to be an «specially strong pattern. When a stock first breaks out to a new high of trie past several months, sometimes it will pull back slightly and trade sideways from several days to a week or two. Often you will see a consolidation type of pattern as it is preparing ;o challenge the new high again. On the day ihe Stock breaks out to penetrate the prior high, you will usually see very heavy buying come into the stock that may drive it up several points If today appears lobe the day of the breakout, rely on your daily and intraday setups to enter the trade.

Summary

The longer term daily chart patterns help you to recognize consolidation patterns that lead to good breakout day trades. Also recognizing when you are in sideways price congestion will keep you from trading a stock while it is choppy and less predictable. Don't use these setups to blindly lire off a trade. Rather, use them to alert you to monitor the stock for a puce breakout and thus a high probability trade. At that point go to your 1 to 3 day and intraday analysis to time your entry. Trading with the trend in these instances increases your odds of success. Be aware of the overall market indexes; you'll want them on your side as well.

Conclusion

You've seen how to recognize and anticipate high probability trading patterns in several time frames. Putting them all together only increases the odds of a successful trade. Trading with the stock's trend and with the market direction (both daily and intraday) only enhances your win rate. Time your entry with the momentum on the market maker screen, and enter the market al the price you want. But remember, it is better to miss a good trade than to get a poor fill and subsequenlly lose $$$$. There will always be another good trade setup, so wait for it and take only the best trades.