slipshod wrote:...
The other time the wedge can form is off a base - lets say the price has been falling, hits an area of support and starts to bounce. As it rises, it immediately forms an ascending wedge. Do you short on the assumption that its a reversal pattern signifying that the previous downtrend will continue? This is always a tough one. A wedge like this can form because big money are loading up long but trying hard not to drive up the price, but the small-fry sellers are thinning out & the price is starting to run despite their best efforts. When this happens there's no reversal, but instead a strong upwards spike - that's why I try and avoid trading wedges in that context.

slipshod wrote: Compression is a term I picked up recently from http://www.acegazette.com (great site, you should check it out), which basically means a lot of retracing/backtesting throughout a move. What that tends to do is eliminate any areas of pent-up demand (if its an upwards move) as the frequent retraces give opportunity for everyone to go long who wants to.

So when a reversal comes, there's no big block of pending orders there to stop it in its tracks, it can just smash straight through. GU over the last week is a great example.

Conversely, if the price just flies in series of big candles without a pause, that can be just as fragile - a reversal can do just the same thing in return. Look at UCAD's bouncing up & down in its 80 pip range last week as an example.

What you want to see is a short pause in a strong rise/fall where the move was challenged, followed by a strong breakout move in the same direction. For this to happen, big money has to have decided to chase the price a bit, and their presence overwhelms opposition to the move. This is the kind of thing Sam Seiden describes & its what I identify on my charts as Supply/Demand levels as distinct from the more traditional Support & Resistance. Usually the first or 2nd retrace to a Supply/Demand level will provide a great entry, assuming big money still have a bunch of orders there waiting to be executed.