Monday, May 14, 2007

Triangle Targets 1

"If you can believe it, the mind can achieve it."

Ronnie Lott

This diagram represents a generic triangle pattern. Points A and B mark the approximate midpoint of each trend line forming the triangle. The distance between point A and B gives a number which is to be used for estimating price targets when the triangle pattern is broken. The distance between A and B is marked X. To estimate the potential move when the triangle is broken, X is multiplied by 1.618 and then added to A or subtracted from B. These are the primary targets that could be expected, A + (X*1.618) and B - (X*1.618).

The 1.618 is not chosen out of thin air, it is derived from a ratio in the Fibonacci sequence. If you divide the a number in the sequence by the number preceding it, you will approximately get 1.618.


If X is multiplied by 2.618 and the same process is applied to both points A and B, we then get a second set of price targets. 2.618 is also a result a ratio resulting from the Fibonacci sequence.


Below are some of the same examples used from Thursday's post, with the price targets applied.


Below is an example when the pattern is broken to the downside.

Next post will cover some more triangle concepts.


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