For every potential trading pattern, there must be guidelines and laid down rules. It is also applicable to . While identifying a , look out for five different points. They are the X, A, B, C, and D points. The lines between each of these points are legs.
These legs are also XA, AB, BC , and CD, respectively. The pattern begins with the XA leg, while the D point represents the end of the pattern. After identifying the points and legs, follow the directives;
The point B has to undergo reversal ranging between 38.2% and 61.8% of the leg XA. A minimum of 38.2 percent but not exceeding 61.8 percent.
Point C is an extended leg and goes beyond A – but must be of a minimum value of 127.2%, but it can still exceed 113%, moving up to a maximum of 141.4%.
The leg CD should intercept the XC at the 78.6 percent level.
The Region of Potential Retracement of point D is a vast limit where the price is heading to, and it lies between 38.2% to 61.8%.