It has been assumed that any move, however small, out of the price pattern constitutes a valid signal of a trend reversal (or resumption, if the pattern is one of consolidation). Quite often, misleading moves known as whipsaws occur, so it is helpful to establish certain criteria to minimize the possibility of misinterpretation.

Conventional wisdom holds that you should wait for a 3 percent penetration of the boundaries before concluding that the breakout is valid. This filters out a substantial number of misleading moves, even though the resulting signals are less timely.

This approach was developed in the first part of the twentieth century when holding periods for market participants were much longer. Today, with the popularity of intraday charts, 3 percent could represent the complete move and then some.

No basic objection to the 3 percent rule for longer-term price movements in which the fluctuations are much greater. However, the best approach is a commonsense one based on experience and judgment in each particular case. It would be very convenient to be able to say that anything over a specific percentage amount represents a valid break­out, but unfortunately a lot depends on the time frame being considered and the volatility of the specific security.