Friday, June 10, 2011
Failed H1/L1 in a strong trend
When the day opens with a very strong trend (large gap, strong closes on first 2 bars), there is a good chance that the first attempt to reverse this trend will not only fail, but fail spectacularly. In addition to a very strong trend, the reversal signal for the first reversal and its entry bar need to be poor (b3,4). A 1tf (b4) sets up an excellent fH1 and you should short below it regardless of how the bar looks.
An fH1 usually goes to a measured move from the beginning of the trend to the failed entry bar (b1 hi to b4 low) and usually reaches the measured move quickly (b8). At the measured move there could be a reversal or further move down, so its best to exit and re-enter on the next signal.
A video of an fH1 trade can be seen here