the hAnDbook of teChniCAl AnAlysisfigUre 13.40 A Bullish Pennant Formation on the 15‐Min Chart of EURUSD.
Source: MetaTrader 4
tests its historical lows, a potential breakout from the wedge formation may be
imminent. The minimum upside and downside price targets are simply one‐to‐
one price projections based on the greatest height within the wedge formation,
measured from the breakout. Entries may be initiated at the breakout of the wedge
formations. See Figures 13.41.
In Figures 13.42 and 13.43 we see rising wedge formations meeting their
minimum one‐to‐one price targets. Notice how price retraces at these price target
levels, indicative of profit taking. Figure 13.43 also depicts various other chart
pattern formations meeting their minimum price targets.
rounding tops and bottoms
Rounding tops are regarded as bearish reversal formations and rounding bottoms
as bullish reversal formations. Volume should gradually subside toward the mid-
dle of the formation and should ideally start to increase thereafter, in anticipation
of a breakout. This formation tends to develop over longer periods as compared
to other chart patterns. The determination of the exact point of completion is not
always clear and obvious with rounding formations. Many practitioners use a sig-
nificantly clear and obvious inflection point at the inception of the formation as a
guide to pattern completion. Once price retests the previous significantly clear and
obvious peak in a rounding bottom formation, the pattern is complete. Similarly,
once price retests the previous significantly clear and obvious trough in a rounding
top formation, the pattern is complete. The minimum upside and downside price
targets are simply one‐to‐one price projections based on the greatest height within
the rounding formation, measured from the breakout of the previous significant
peaks or troughs. See Figures 13.44.