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If you choose to not liquidate the entire position, you can scale out by exiting part of the position whenever you see the first violation, staying in part of the position until you see a second violation, and holding part of the position until you see anything that would cause you to take your money and run. It is entirely subjective as to what you do with the last portion of your position. Depending on your strategy and business plan, you can decide which method is best for you and your trading.

Why didn't we start the segment count a point "a?" The reason is that the market went into congestion by definition of the alternating bars that made the double low at "a," followed by a doji, a reversing bar and then two dojis.

Why didn't we enter a trade earlier, on the breakout of the doji bar that opened and closed at the high of the bar? The answer is that we could have. However, we felt it was better to wait until prices cleared the congestion. At the time the low of the doji bar occurred, the segment was connected to that bar as shown by the following chart.

The last bar shown is the doji bar referred to on the previous page. A breakout of the high of the doji would have been a valid entry signal.

Let's understand. The segment line is drawn from bar to bar until we get a bar that makes a lower low than the previous bar. At that point, the segment line is moved from the previous bar that made a lower low to the current bar making a lower low. In the case of the chart we've been examining, the progression would have been as shown on the next three charts.

Notice that the segment line is moving along at the lows. We will not move away from hugging those lows with the segment line until we see a bar that makes a lower low than the previous bar. A breakout of the high of this last bar, or the high of the next bar, would also have been a valid entry signal.

On the left was the last part of the segment prior to a bar making a lower low. Segment 3 will be finalized when we get a bar with a lower low.

The chart on the left shows how the segment line for segment 3 finally ended with a lower low.

As prices retreat from the 30 minute bar that made the high and also the close of the previous day, we begin to count and connect the diminishing highs.

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