Here is a Plan which is about Trading a Double Top Pullback. In trend reversal chart patterns, after the initial breakout move, there is a tendency for price to retrace towards the breakout line, before continuing the trend reversal move. This setup provides a good entry as the Stop loss level is clear and tend to have a low probability of losing, if the position is well managed.
1. Price for OGE has been trading in a general uptrend from 2011, with price trading from 20.00s to around $38.00 on 2013 November.
2. While the trend was generally bullish, there were signs that price was shifting to sideways consolidation, when price was ranging between $38 and $33 between 2013 June and Jan 2015. The sideways consolidation was confirmed when the uptrend line in 1. was broken in 2014 August.
Subsequently, we observed a Double Top pattern being confirmed, when price broke below significant price support level of $33.00 and drop to around 31.30s. Yes, this Double Top formation does look a bit fuzzy, but if you switch to the Weekly or Monthly Charts, the pattern will be clearer.
This Double top has a neckline of 33.00, with an estimated height of $5 (38.00 - 33.00) and a theoretical price target of $28.00
3. From March 2015 until now, we see that price has pullback to neckline ($33) and there were signs of resistance selling. This price action indicates that it is likely that short positions are being entered just below $33.00, in anticipation of further bearish price move.
Projection: We project that additional resistance selling will likely come in to bring prices much lower and continue the bearish trend established by the Double Top pattern in 2.
Short Entry Conditions: Only when both conditions a) AND b) listed below are true: a) If price is does not do a daily close above $33.00 from now. b) Price can convincingly close a day below $32.00.
Initial Stop Loss: Above $33.00 The reason for this trade is to capture the bearish trend from a Double Top pattern. Therefore, if price manages to trade above $33.00, it means that the Double Top pattern has failed and the reason to maintain a short position is eliminated.
Shifting of Stop Loss after entry: If prices manages to trade to $31.50 after entry, we can consider shifting the stop loss lower to $32.00. The reason is that if price is genuinely breaking out below, it should exhibit a clean strong move downwards $30.00 and below. Therefore this shifting of stop loss is a conservative approach to protect risk capital.
Taking Profit: $29.00 While the theoretical Double Top target is $28, it is better to use a more conservative target of $29.00. Advanced traders can also look to take profit when RSI (14) is close to reaching the 28.0000 level.
Risk: There is a risk that Earnings Release on May 07 2015 will drive prices higher.
Flipping Around if Short Squeezed: In the event that price manages to trade back above the neckline of $33.00, it will mean that the Double Top pattern has failed and the short position will incur a loss. It is also likely that this failed pattern will lead to a short squeeze move with enough momentum to push prices higher to around $35.50.
Therefore more advanced traders may consider turning around and go long above $33.00 to capture this short squeeze momentum.
لا يُقصد بالمعلومات والمنشورات أن تكون، أو تشكل، أي نصيحة مالية أو استثمارية أو تجارية أو أنواع أخرى من النصائح أو التوصيات المقدمة أو المعتمدة من TradingView. اقرأ المزيد في شروط الاستخدام.