2-c

In this lesson part, you'll learn how to arrive at two price targets using Dr. A
ndrew's sideways channel count. Simple arithmetic is all that's required once th
e sideways channel and circles are in place. You'll find two charts attached tha
t illustrate how price targets are calculated.
The first target is considered to be the principal price objective, since the se
cond target is not always met. Dr. Andrews observed that a price reversal is com
mon after the first target level is reached, often resulting in a change of tren
d. Because of that, he considered the second target to be supplemental, an addit
ional price level to watch in the event a price correction from the target one l
evel does not result in a trend change. In any event, expect to see a price reve
rsal once the first target price has been reached. You'll notice how frequently
that happens as you practice drawing sideways channels on your charts.
We'll continue to use the Delphi chart for reference. Note that prices eventuall
y broke to the upside from the point where we placed our third circle on the upp
er channel line, so had a trader been following Delphi at that time, figuring ou
t possible upside targets would have been in order. Here's the procedure:
1: Determine the price range of the channel. In this case, the range is $1.40. (
14.15 - 12.75)
2: Count the number of circles on the upper channel line. The upper line circles
are counted because that's the line that didn't hold. Prices broke through it,
returned a few days later to retest the channel, and then reversed, resuming the
upward move. (Note: the retest of the channel line after the price breakthrough
is mentioned only to help follow the price action in this example. Retests happ
en occasionally, but are not a precedent for this procedure.) Next, here are th
e steps that were followed to calculate the price targets for Delphi:
(1) Multiply the price range of the channel times the number of circles drawn
on the
upper channel line. (1.40 x 3 = 4.20)
(2) Add that figure to the lower channel line price. The result becomes upside
price target #1. (12.75 + 4.20 = 16.95)
(3) Next, add that same figure to the price at the upper channel line. That's
price
target #2. (14.15 +4.20 = 18.35)
In the case of a downside channel breakout, the procedure is reversed. You'll fi
nd a second chart example attached (RIMM) that shows target price calculations f
or a downside breakout. Please draw a few channels in order to determine price t
argets on your own charts. When you're ready, send me an example of your work. A
s always, send your questions as they arise.