A trendline break (b19) followed by a test of the extreme (b23), followed by an additional trendline break (b30), followed by a 2L failure to reach the extreme (b37) is a double trendline break and a major reversal. You should always take these since they lead to strong trends.
While a trendline break and a 2L move to a new extreme (b25) is a signal in itself, the poor signal bar should keep you out. A second entry is acceptable even with a marginal signal but a 2L LH is a much better signal. A 1L LH (b32) should rarely be taken (for example when there is a strong overshoot). In all other cases, a 2L LH is an ideal entry point.
Hi Cad,
ReplyDeleteThis is a very interesting post. I would have never noticed that this would have become a major reversal. I am curious -about how do you notice patterns like this and verify them as valid trades? Do you get a statistical sampling in Sim before you do the trade live?
Thank you for doing this blog, it is a great learning tool!
Eumaeus, This setup is described in Al Brooks book under "Best Trades". Only his example was about a long entry while this post illustrates a short entry.
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