Figure 3 Sure enough, an event comes four days after my order was filled. Time will tell if this is the beginning of a congestion or otherwise. Just to be sure, I move my stop to a profit point that is just below a .618 retracement of the market swing that carried from point "A" on the chart to the latest market high. I also compute a .382 retracement of this swing in case the retracement only reaches to that point. Often a market wil! retrace somewhere between the .618 and the .382 points. If it does, that is fine with me because it shows a market that is doing what I might have expected it to do.

For point "A," I chose the top of the iast gap. This is because It represents a point that was approximately the middle of the prior congestion, and prices have supported there in the past.

8525 8413

.3B2 ... .618

stop

7602 7421

7309 7128

Figure 4 As expected, prices moved to just past a .382 retracement and then headed back up. i now have / on the chart in front of me based on the original teg up /, a leg down \, and another leg up /, so 1 compute and draw the envelope. I will not use the envelope yet because the trading range is not yet 21 + days old, but I want to know where it is as a point of reference in case I need it. If prices breakout of the envelope then I wilt discard it in favor of a new one, or discard it entirely.

Z - ijyy breakout

,- sell breakout

Figure 5 I also have a new opportunity to place both a buy and a sell order, A buy order would be based upon a breakout of the 1-2-3 low, and a sell order would be based upon a breakout of the l-II-III high shown on the chart.

For the present, I will label this formation as having a 1-2-3 low. Its okay to mark the #1 point at the top of the gap. The #1 point is there merely for reference. Later, when I describe how to trade a Ross hook, I will show similar formations with the focus on the #2 point, which is really a Ross hook.