Let's take a look at IBKR and the current setup I'm waiting for.
As you can see on the chart, I have defined all those situations with one thing in common, massive drawdown in terms of time and decline and the subsequent resolution after we have a new all-time-high (ATH).
First Scenario: 65% decline and 2660 days until a new ATH / Followed by a 27% bullish movement from the previous high. Second Scenario: 35% decline and 826 days until a new ATH / Followed by a 75% bullish movement from the previous high. Third Scenario (current situation): 57% decline and 1316 until a new ATH / Followed by ????
The idea I have right now is that I'm expecting a similar resolution of the previous 2 scenarios based on past behavior. Am I saying this will happen? Of course not; my win rate is 50%; however, the risk to reward ratio I'm looking at on this setup is 2.5. In other words: for every dollar I'm risking, I'm aiming to make 2.5 dollars.
Alright, let's speak about the trading template: The pattern I observed in all the previous bull runs goes like this: a) The price makes a new ATH b) The price makes a 7 days consolidation c) Entry above the consolidation, stop below, target at 255% movement from the previous high (i want to be conservative) d) IF everything goes as expected, the expected time for this resolution is between 50 to 100 days.
To be clear, these are the levels I'm using: ENTRY: 81.30 STOP:73.85 TAKE PROFIT: 99.99 BREAK-EVEN: 89.00 (I will move my stop loss to the entry-level)
Thanks for reading! Feel free to add your charts or view in the comments.