Hi all,
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.
References:
Double Top: stockcharts.com...school/doku.php?id=chart_s...
How to Short a Stock in Double Top Pattern Strategy: www.simple-stock-tra...o-short-a-stock.html
Using Support and Resistance Levels of Relative Strength Index> Technical Analysis for the Trading Professional by Constance Brown, Chapter 1: Oscillators Do Not Travel between 0 and 100.
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Trading View: BreakOutArtist
StockTwits: stocktwits.com/BreakOutArtist
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.
References:
Double Top: stockcharts.com...school/doku.php?id=chart_s...
How to Short a Stock in Double Top Pattern Strategy: www.simple-stock-tra...o-short-a-stock.html
Using Support and Resistance Levels of Relative Strength Index> Technical Analysis for the Trading Professional by Constance Brown, Chapter 1: Oscillators Do Not Travel between 0 and 100.
Like it, Share it, Follow it~
Trading View: BreakOutArtist
StockTwits: stocktwits.com/BreakOutArtist