Failed Double Top - Daily Pattern
Failed Double Top - Daily Pattern
Tools Candlestick/Bar Chart (Daily), Colour Coded Volume, 21 and 50 SMA
Trade Setup This is a very powerful EOD setup which I came across during my early days of trading. It is one of my favourite EOD trading strategies. To walk you through this setup, I am going to explain it to you in various steps.
1. Trend Determination - There has to be a 'trend' in place for an effective reversal to kick in. Hence, the first step of this setup is to identify stocks which are trending. You can either do this through a trend line or you can use the method which I use. I usually plot 2 SMA (period 21 and period 50) and determine the trend of the stock by the slope of these averages. If 21 SMA and 50SMA do not touch for a while and both exhibit slope greater than 25 degrees, then the stock is in a very strong up trend. These are the kind of stocks we want to choose for this particular strategy.
2. The Pull-Back Phase - After, a descent run up, the stock forms a new high (1st Top) with heavy volumes and retraces back to the 21 SMA or 50 SMA. Usually the stock does not touch the 50 SMA. The stock usually forms a candlestick reversal pattern and head's off to make a new high.
3. The Trap (Top) - As the name suggests, this is the phase where a New High is formed. This is a new high, which is formed on very light volume and convinces many traders as a genuine high (breakout). It is here when many traders enter long positions in anticipation of a price rise. What essentially happens is that the prices fall back below the first top (within 2 days) and continue to slide down to the previous swing high. This dents the confidence of those who went long on the new highs and usually panic selling kicks in. The gain is quick in the set -up and the risk reward ratio is amazing.
Example - Oriental Bank recently formed this pattern. The stock was in an uptrend from september as determined by the slope of averages. The volumes at first top were high whereas at the second top they were low. The stock price fell below the previous top within 2 working sessions. Finally it fell back to the previous swing high.
Important Notes Do NOT forget to look at the trend of the stock and the volumes. Finally, the prices must fall back within 2 days below the first top.
Stop Loss - Keep a strict stop loss of a close beyond the high of the 2nd top.
Failed Double Top - Daily Pattern
Tools Candlestick/Bar Chart (Daily), Colour Coded Volume, 21 and 50 SMA
Trade Setup This is a very powerful EOD setup which I came across during my early days of trading. It is one of my favourite EOD trading strategies. To walk you through this setup, I am going to explain it to you in various steps.
1. Trend Determination - There has to be a 'trend' in place for an effective reversal to kick in. Hence, the first step of this setup is to identify stocks which are trending. You can either do this through a trend line or you can use the method which I use. I usually plot 2 SMA (period 21 and period 50) and determine the trend of the stock by the slope of these averages. If 21 SMA and 50SMA do not touch for a while and both exhibit slope greater than 25 degrees, then the stock is in a very strong up trend. These are the kind of stocks we want to choose for this particular strategy.
2. The Pull-Back Phase - After, a descent run up, the stock forms a new high (1st Top) with heavy volumes and retraces back to the 21 SMA or 50 SMA. Usually the stock does not touch the 50 SMA. The stock usually forms a candlestick reversal pattern and head's off to make a new high.
3. The Trap (Top) - As the name suggests, this is the phase where a New High is formed. This is a new high, which is formed on very light volume and convinces many traders as a genuine high (breakout). It is here when many traders enter long positions in anticipation of a price rise. What essentially happens is that the prices fall back below the first top (within 2 days) and continue to slide down to the previous swing high. This dents the confidence of those who went long on the new highs and usually panic selling kicks in. The gain is quick in the set -up and the risk reward ratio is amazing.
Example - Oriental Bank recently formed this pattern. The stock was in an uptrend from september as determined by the slope of averages. The volumes at first top were high whereas at the second top they were low. The stock price fell below the previous top within 2 working sessions. Finally it fell back to the previous swing high.
Important Notes Do NOT forget to look at the trend of the stock and the volumes. Finally, the prices must fall back within 2 days below the first top.
Stop Loss - Keep a strict stop loss of a close beyond the high of the 2nd top.