Trading Price Structure / Context: Wedges

Sometimes, the market just isn't giving any high probability setups. It's important to know when to participate and when to sit on your hands, this is one of the most important rules in trading. Its very difficult however to sit and do nothing, because we always want to be in a trade, worried that we'll miss the "move".

I like to draw on my charts and determine where I'm going to trade. Certain structures will trigger plenty of high probability trades. For example, a very strong bull trend channel is traded a specific way. There are rules to the side of the market that you trade and how you enter.

Today, I want to discuss wedges. Below is an example, real-time, of the current wedge in the market. To setup the scenario, the market sold off very heavy overnight and it is now ranging. It is unlikely that it will reach pre market highs levels, and it is unlikely that the sell-off will extend another measured move. Because of this, the current environment is untradeable at the moment.

To be tradeable, I want to see a break of the wedge range that is successful. The pullback should not channel back into the wedge if the breakout is strong. A very important rule is to NOT TRADE THE MIDDLE OF A WEDGE, you will get chopped up in the price action! The blue horizontal lines are swing points of importance. You want to recognize price acceptance and rejection around those areas. Above and below those swings is where a lot of stops are placed, dont expect strong breakouts of swings, rather expect stop hits and failed breakouts.

*IMPORTANT* Remember, you want to see buyers succeeding in the buy zone and / or sellers succeeding in the sell zone for the position to be high probability. If you have failure in either zone, the opposite is warranted and the wedge may be an expansion into a larger range.

You DO NOT want to see seller failure on the break of the major swing low above the current day LOD. If this occurs, it is a sign of continued ranging. Same on the upside. You want those swings broken strong, not just broken to take out stops.