A trade that works for me, is identifying the second leg, the channel, that follows a spike. Found on all timeframes, this one set up on Friday, Jan 5th, with a spike on the 15 minute timeframe.
The vertical spike is on the righ-hand side of the image, and as expected after such a strong and extensive spike, there was a correspondingly significant pullback. The pullback manifests two touches of the bear trend channel line, aka two legs of an expected 3 leg wedge completion to the pullback.
The expectation was that there would be one more push down to the bear trend channel like, most likely a push through it to give a breakout, and then a reversal, giving a failed breakout, and the basis for a reversal trade in the direction of the spike.
The trade setup almost exactly as I predicted on the 15 chart. However, I was watching the 5 minute chart which was choppier, and thanks to me still being new at being correct in my reads, I second guessed and waited for more action before taking the trade.
First bar of the day broke the trend channel line and reversed up. Third bar reversed back down through the channel line and hit the stops of those who had taken the trade off of the first bar, something I know often happens before a sizeable trend. Trends rarely reverse is a smooth V-shape of straight down and then straight up. Usually there is a messy trading range in between, as the proponents of the new would be trend build their case, and the hangers on from the old trend look to make a few final scalps. So it is with me as I transition from a loser to a winner. I now read the charts successfully in many, indeed most, cases, but the legacy of my 2.5 years as a loser will take time to shrug off. So I miss out on trades that I shou’da taken. Oh well. Gotta enjoy the journey! And stay liquid while doing so.
Expected target for this trade would be to at a minimum exceed the spike with a possible measured move based on the height of the spike.
The channel in this case was pretty vertical. It didn’t quite make the measured move and I didn’t make much money due to my hesitation. I bought 20 shares and sold out at the height of the spike, but hey every little bit helps. Looking at the pullback from the top of the channel we can see a wedge shaped pullback on the 15m chart (3 pushes down). That might setup a pullback buy, today Jan 9th, but the strength of the 3rd leg down suggest that there will be a further fall at least to the brown moving average (100 EMA) or the 20EMA on the 60 min chart.