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13 Now it was time to estabiisli an envelope around tine congestion area. Why the envelope, and why a .146 expansion rather than a .236 expansion of the magnitude of the range? Because experience has shown that most of the time it takes £ movement of price (momentum) sufficient to penetrate and cross the envelope barrier to really establish a breakout. Coincidentally .146, a Fibonacci ratio, has through experimentation proven to be an adequate numeric measure of price expansion sufficien, to quantify the amount of movement needed for a true breakout of Wheat. Each trader has to experiment for himself on whether to use .236 or .146 for any given market. A general rule would be that the longer the length of time for the trading range, th more momentum prices will need to escape. Therefore a .236 expansion is preferred for very long trading ranges, and a .146 expansion is preferred for trading ranges lasting 1 20 days, or those that are in relatively tight trading ranges. By tight 1 mean relatively narrow from top to bottom. Note that in this case I am writing about congestion areas that are not as mature as those lasting 21-29 days. At any time that a .146 expansion will clear all nearby previous support or resistance, its okay to use it. When t say nearb previous support or resistance, 1 refer to that which ! can see on my chart with the 140 bars showing. A good rule is to examine both, and then see which breakout would get the trade past major support or resistance areas from time periods prior to the trading range that i currently to be established. Recalling that the envelope is developed by taking the difference between the higr for the range and the low for the range, multiplying that difference by .146, and then adding the result to the top of the range and subtracting it from the bottom of the range I get: 28425 - 26325 = 1500. 1500 x .146 = 219 219-1- 28425 = 28644 or 28650 rounded to the nearest tick. 26925 - 219 = 26706 or 26700 rounded to the nearest tick. My envelope has an upper limit of 28650 and a lower limit of 26700. These numbers are called the midout-hi and the midout-Io for purposes of reference.
High = 28425 Lou = 26S25 (Full Line) Outer High = 28V79 Lou = 26571 (Mtei Line) UG Inner High = 28286 Lou = 27144 HidOut Hi = 28644 Lo 26706 (Bashed)  Figure 24. If I buy Wheat on a breakout of 28650, my initial stop wilt be at 26875, which is 2 ticks below the low of the range. If I sell Wheat on a breakout of 26700, my initial stop will be 28475, which is 2 ticks above the high for the range. All that is left to do is to call my broker and place my orders. It is important that do it as soon as possible.
28840 2B418 27982 27553 2?i24 26695 2 25837 25488 24979 24550 D--B105 0=28858 H=28650 L=28BBB C=28658 Figure 25 On January 5, Wheat closes at 28650 which fulfills the entry requirement to go long on a close at or above 28650, and my order to buy is filled. My stop is in place and my broker cancels my open orders involving the sale of Wheat shoulc it have broken out to the downside.
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