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15 nGURcm-t CONSTANT WIDTH CHANNEL C-RESUUANT SIMULATED PRICE MOTION---  UPTREND LINE -IDEALIZED SUM OF ALL LONGER DURATION COMPONENTS A-IDEALIZED CYCLIC COMPONENT  TIME Channel Formation
Verify Your Chart Patrems C-I0EAU20 "«" COMPONENT-  TIME Adding Anoth Component  FIGURE - TIME The Summation Principle Applied
DOWNSJOe BRtAKOUT-UPTREND LINE » DOWNMOe -NECKLMC - oomtmm urc  How Head And Shoulder Patterns Form a classic one with a sloping neckline. The downside breakthrough confirms the trend reversal called by the previous breakthrough the uptrend hne, and calls for ftirther downside activity. The oft-noted "return move" to or near the neckline is present, followed (as per tradition) by further downside activity. All of this from an almost ridiculously simplified version of our price-action model! Lets pause a moment and discuss what weve seen happen. Direct your attention to Figure ni-5. The simulated price motion of Figure 1 -3 is reproduced here, but this tune with our constant-width envelope of eariier chapters added. The constant-width envelope phenomenon is seen to be a mandatory outgrowth of the cyclic model! Obviously, when ail fluctuations completely fill such an envelope over any given period of time, the magnitude-duration fluctuations for the intra-channel cyclic component must be nil for this time period. And indeed, this is exactly what Figure III-5 shows, and exactly the way the simulated price motion was formed in this case! Furthermore, when the fluctuations do not fill such an envelope, we are warned that such magnitude-duration fluctuations are forming up. Now note the overiay in Figure 1-5 of the previously remarked up and down trend Unes and associated up and down channels. It is easy to see here that the chartists trend lines and channels are simply straightened-out segments of our constant-width envelope boundaries, which actually are curved! Clearly, when a longer duration cycle than the one contained within the channel bens to turn over, our curvilinear channel turns also, and prices quickly "break" through the chartists trend lines and channel boundaries. His assumption, therefore, that this indicates a major price reversal is founded on the facts that:
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