Stocks & Commodities V. 22:4 (30-37): Do Price Patterns Really Work? by Martin J. Pring
How far can you expect prices to go when they break
out of a pattern? Here’s one technique you can use to
Technical analysis focuses on identifying trends early on and riding them until evidence of a reversal appears.
Essentially, these trends are periods in which either buyers or sellers are in command, depending on direction.
Fortunately for technicians, there is usually a transitional phase or trading range separating up- and
downtrends. During these trading ranges, neither side
is in control. Over the years, market participants have
noticed that many of these ranges trace out fairly
definable price formations, which, when completed
with a breakout, signify that a new trend is under way
(see Figure 1 for a bear/bull reversal).
Once prices break out from such a pattern, it is possible to set an objective by measuring the pattern’s
depth and projecting this distance in the direction of
the breakout. In this article I will be concentrating on
daily charts, but the principles apply to any time frame.