For those who are unfamiliar with Andrew Cardwell's unorthodox interpretations of , these reversal patterns are far more important than common divergences. The highest-probability reversal patterns form within the space of 2-5 bars (from the X point to point 2), although somewhat longer patterns are sometimes valid. The calculation is as follows:
Subtracting the close at point 2 (1.06336) from the close at point X (1.08491), we get the value of 215.5; if we then subtract that result from the lowest close at point 1 (1.05458), we obtain a target of 1.03303 on a daily close.
Remember: divergences usually signal only a relatively brief correction to the trend; negative reversals confirm a downtrend (as positive reversals confirm uptrends) and, through their targets, help you to stay with the trend.