Tuesday, November 8, 2011
Failed continuations confirm reversals
When a possible reversal pattern has triggered such as b23,24 2 bar reversal on the third push down but the original trend is still unbroken (because a trendline has not been broken), a continuation needs to fail before you can trade in the direction of the new trend.
A 2 legged move after a wedge move such as b29 is often a very good continuation signal and should be taken since it often leads to a move of similar magnitude. If this move fails as it did when b31 took out b29, you should look for setups in the new direction only.
So for example, while b39 worked today, on days when bars are smaller it is likely to fail. The correct trade would be to buy the A2 above b46 in the direction of the new trend and swing it.