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.
55/34=1.617647
89/55=1.6181818
144/89=1.61797
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.
89/34=2.61764
55/21=2.619074
144/55=2.618181818
Below are some of the same examples used from Thursday's post, with the price targets applied.
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Below is an example when the pattern is broken to the downside.
Next post will cover some more triangle concepts.
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