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Re: Wolfe
HI blowfish,
I think you mean a channel line b/w points 1 and 3. Yes I agree, if this is truly a top, then the pattern is not valid and momentum will carry the price down below the 1-3 line. The 1-3 line would then act as resistance and I would use the 2-4 line as the accelerated channel line. ( I think you understand this since you know channels, sorry for anyone else who is lost ).
Basically what this is is a descending wedge pattern. When the lower line of the wedge breaks, 2 things can happen.
1. Price accelerates in a downward direction and a quick move down is made (down trend is intact).
2. Price tests lower line and rejects. In that case a dramatic reversal is made fueled by the short covering of those who sold short on the break down, and those re-entering that lost money on the previous attempt higher at point #1. (This means the market is locked in a range).
Sorry if this is a ramble, need to drink some water and coffee to wake up.
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