A continuation triangle with Fibonacci targets and an apex stop

Contraction that narrows toward an apex

Price action is framed as alternating range contraction and range expansion. A common triangle is described as a contraction that narrows toward an apex, the projected intersection of the two triangle boundaries.

The triangle is a narrowing consolidation drawn from opposing pivot-high and pivot-low boundaries. It is treated as a range contraction that can resolve into a new expansion phase. Triangles and wedges are treated as continuation consolidations: a breakout can serve as the entry and a Fibonacci-ratio calculation as the planned exit zone.

Boundaries from pivot highs and pivot lows

Triangle boundaries are drawn only from pivot highs and pivot lows. A pivot high is a bar whose high is higher than the highs of the bars immediately before and after it, and it is used as a valid upper-boundary touch. A pivot low is a bar whose low is lower than the lows of the bars immediately before and after it, and it is used as a valid lower-boundary touch.

A possible setup is noted once each line has at least two touches and the slopes oppose each other. A preferred formation has three touches on one line and two on the other. A third-touch bar that pierced the upper line without exceeding the prior upper pivot high was used as a clue that the breakout would be upward.

Entry, apex stop, and Fibonacci exit zones

In the cocoa illustration, after the third-touch high printed 1490, the long entry stop was set five ticks higher at 1495.

The initial stop-loss is a protective order placed just beyond the apex on the side opposite the entry. In the long example that level was 1464. The stop is not tied to the fill price.

Midpoint height is the vertical price distance between the two triangle boundaries at the halfway point in time from the longest side of the formation to the projected apex, which is 50 percent of the elapsed time from the longest side to the apex. That height was 39 points in the example.

A Fibonacci overlay scales that midpoint height by Fibonacci ratios to mark 61.8 percent, 100 percent, and 1.618 extension exit zones from the ideal entry. The 100 percent target adds one midpoint height to the ideal entry (1495 plus 39 equals 1534). The 1.618 extension is 1495 plus 39 times 1.618, or about 1558. Charts also mark a 61.8 percent zone.

Trailing the stop after the base extreme

After price trades above the highest high of the triangle base (1519), the long stop is moved to just below the entry-bar low (1484).

The plan is presented as entering at the end of contraction and exiting during expansion, without requiring a forecast of where the session will finish.