Here is a 4-hour chart of Ethereum, and the identified pattern of a double top with a projected target, here is how one might describe a possible entry, exit, and invalidation criteria for this illustration:
Entry:
A potential entry could be considered on a retest of the neckline of the double top pattern. This often occurs after the price breaks below the neckline and then pulls back to test this level as new resistance. Traders might look for bearish price action or confirmation via trading indicators on the retest before entering a short position.
Exit (Target):
The target is indicated on the chart by the 'Target' label. The measurement of the target for a double-top pattern is typically the vertical distance from the neckline to the top of the pattern projected downward from the point of the break. Traders would aim to take profits at or just above this price level to account for potential support and order slippage.
Invalidation Criteria:
A common invalidation point for this trade setup would be a price move back above the neckline after entry. Some traders may set a buffer above the neckline to avoid being stopped by a false breakout. Others might consider the trade invalidated if the price moves above the lower high that formed between the two tops.
It is crucial to note that these trading strategies should be used in the context of a well-thought-out trading plan, considering risk management, position sizing, and the trader's overall market outlook. Each trader's specific entry, exit, and invalidation criteria will vary based on their trading style, risk tolerance, and the specific market conditions at the time.
Important: This post is for educational purposes only and should not be taken as financial advice or a recommendation to trade.
Entry:
A potential entry could be considered on a retest of the neckline of the double top pattern. This often occurs after the price breaks below the neckline and then pulls back to test this level as new resistance. Traders might look for bearish price action or confirmation via trading indicators on the retest before entering a short position.
Exit (Target):
The target is indicated on the chart by the 'Target' label. The measurement of the target for a double-top pattern is typically the vertical distance from the neckline to the top of the pattern projected downward from the point of the break. Traders would aim to take profits at or just above this price level to account for potential support and order slippage.
Invalidation Criteria:
A common invalidation point for this trade setup would be a price move back above the neckline after entry. Some traders may set a buffer above the neckline to avoid being stopped by a false breakout. Others might consider the trade invalidated if the price moves above the lower high that formed between the two tops.
It is crucial to note that these trading strategies should be used in the context of a well-thought-out trading plan, considering risk management, position sizing, and the trader's overall market outlook. Each trader's specific entry, exit, and invalidation criteria will vary based on their trading style, risk tolerance, and the specific market conditions at the time.
Important: This post is for educational purposes only and should not be taken as financial advice or a recommendation to trade.