Hi all,
This plan is about trading the “Continuation Move of a Reversal Pattern”.
The idea is to enter in the direction of the trend, after the pullback of price to the Support/Resistance level of a Reversal pattern. Let’s call it the “Baby One More Time” trade, to make it interesting.
1. Allergan (AGN) has been trading in an uptrend from May 2014 to August 2015.
During this period, price has risen steadily from 85 to as high as 340, a whopping 300% increase.
2. However, after August 2015, price has broken the trend line and developed into a sideways consolidation. Subsequently, this consolidation has evolved into a Double Top Pattern, breaking past Neckline of 252 on 05 April 202. This breakout move reached as low as 195.50 on 06 May 2016.
By measuring roughly the height of the double top and projecting from the neckline, we place the theoretical objective of this double top to reach at least 180.
Also this establishes the bearish trend is now in charge.
3. The thing about reversal patterns is that there is a tendency to pull back towards the Neckline and then continue the trending move. Here we observe AGN retracing towards the neckline of 252 and we see a u-turn in the current price action.
So how do we know the retracement is over and price is likely to do the continuation move? One way is to look at the Parabolic SAR (0.02,0.02,0.2). This indicator helps to identify the up wave & down wave phases of the price. Dots below the price will trace an up wave phase and dots above the line indicate the down wave phase.Here we note that the recent parabolic SAR up wave phase is over and we are now in the start of a down wave phase. In other words Parabolic SAR indicating the possibility of a down move developing.
4. The RSI (14) is another piece of evidence that points to the possibility of a down move. We observed that the indicator is turning lower, against RSI resistance level of around 70s
Projection
Given:
a) the tendency for Reversal Patterns to retrace to Neckline and u-turn to continue the trend
b) SAR indicates that recent price turn against 252 is likely the start of a new down wave phase
c) RSI is bouncing off resistance level
We project that price is likely going to move momentously lower and try to reach for the theoretical objective of this double top at 180.
Entry:
Anytime from now, at a price no more than 246.
Stop Loss: Above 252
Trend line Stop: If price closes above the red arrow, it indicates that price is lacking bearish momentum and all short positions should be closed.
Taking Profit
We can never know how far price can go, so it might be prudent to look at taking partial profit along the way. Profit can be taken partially at TP1 (Say 35%) & TP2 (Say 45$), leaving about 20% for TP3 (180) and below. Market is not obligated to hit the theoretical target but we know it definitely try.
Have a profitable Day!
-BreakOutArtist
This plan is about trading the “Continuation Move of a Reversal Pattern”.
The idea is to enter in the direction of the trend, after the pullback of price to the Support/Resistance level of a Reversal pattern. Let’s call it the “Baby One More Time” trade, to make it interesting.
1. Allergan (AGN) has been trading in an uptrend from May 2014 to August 2015.
During this period, price has risen steadily from 85 to as high as 340, a whopping 300% increase.
2. However, after August 2015, price has broken the trend line and developed into a sideways consolidation. Subsequently, this consolidation has evolved into a Double Top Pattern, breaking past Neckline of 252 on 05 April 202. This breakout move reached as low as 195.50 on 06 May 2016.
By measuring roughly the height of the double top and projecting from the neckline, we place the theoretical objective of this double top to reach at least 180.
Also this establishes the bearish trend is now in charge.
3. The thing about reversal patterns is that there is a tendency to pull back towards the Neckline and then continue the trending move. Here we observe AGN retracing towards the neckline of 252 and we see a u-turn in the current price action.
So how do we know the retracement is over and price is likely to do the continuation move? One way is to look at the Parabolic SAR (0.02,0.02,0.2). This indicator helps to identify the up wave & down wave phases of the price. Dots below the price will trace an up wave phase and dots above the line indicate the down wave phase.Here we note that the recent parabolic SAR up wave phase is over and we are now in the start of a down wave phase. In other words Parabolic SAR indicating the possibility of a down move developing.
4. The RSI (14) is another piece of evidence that points to the possibility of a down move. We observed that the indicator is turning lower, against RSI resistance level of around 70s
Projection
Given:
a) the tendency for Reversal Patterns to retrace to Neckline and u-turn to continue the trend
b) SAR indicates that recent price turn against 252 is likely the start of a new down wave phase
c) RSI is bouncing off resistance level
We project that price is likely going to move momentously lower and try to reach for the theoretical objective of this double top at 180.
Entry:
Anytime from now, at a price no more than 246.
Stop Loss: Above 252
Trend line Stop: If price closes above the red arrow, it indicates that price is lacking bearish momentum and all short positions should be closed.
Taking Profit
We can never know how far price can go, so it might be prudent to look at taking partial profit along the way. Profit can be taken partially at TP1 (Say 35%) & TP2 (Say 45$), leaving about 20% for TP3 (180) and below. Market is not obligated to hit the theoretical target but we know it definitely try.
Have a profitable Day!
-BreakOutArtist