Target versus “Target”
We got the correction I mentioned yesterday (or perhaps only part of it.) The potential WEDGE formation broke downwards as it should, but the movement towards the target (point #5) was not as direct as it is in most wedges. This five minute chart only shows yesterday’s wedge and its completion.
Pattern targets are best used to determine reward/risk measurements, and in this case I would not have taken the trade. But assuming an entry, what do you do about targets? Actually, you treat the trade just like any other, using trendlines, support and resistance, and Fibonacci measurements. Whether or not you get to the “official” target depends on trade management.
Today’s first move after a small gap was up to the day’s high at point “0.” After the trade triggers, a Fibonacci cluster develops at point “C.” Remember that Fib clusters require several measurements to show almost the same level. These were so close together that drawing multiple lines just makes the chart hard to read.
Point “C” is an 89% Fibonacci retracement of the move from “5″ to the top at “0.” It is also a 127% retracement of the move from “X” to “0.” And the third measurement is a Fibonacci extension; measure from “0″ down to “A” and you will find that it is duplicated by the distance from “B” to “C” — a Measured Move.
All of these targets are available an hour before we reach point “C”, so there is plenty of time to decide whether to take partial or full profits there. It all depends on your trading plan.
Did we reach the wedge target? Some would say we missed by over half a point because they are under the misconception that trading is always exact. I measure targets on wedges the same way I treat tests of top or bottom. If we get inside the range of the extreme bar at the beginning of the pattern, I count it as a hit. So as far as I am concerned the wedge pattern would have been a successful trade.
