The Trading Book by Anne-Marie Baiynd

Author:Anne-Marie Baiynd
Language: eng
Format: epub
Publisher: McGraw-Hill Companies,Inc.
Published: 2011-12-07T16:00:00+00:00

Figure 8.15 Upward Continuation

When can we establish the probability that the trade is broken? Arrow 2 in Figure 8.16 is the latest most natural stop because it is the breakout level just after the pullback from the long-range candle sitting just below the number 2. The candle formation noted by arrow 1 is a double top and is a key alert to the chance of reversal. Along with that, we see from the Bollinger bands that this retest of the high occurred away from the band. When new highs are created away from the band, the candles that follow will telegraph direction. Many times, that is a reversal formation, and we’ll see lower prices.

The bands do not give us an alert to reversal in any other way here. So we are faced with trimming our position to half size at the pullback after the second spike, then closing the position out after the break of support level, arrow 2. Interestingly, this stop level coincides with the midpoint line of the bands, and this also signals the potential for change in direction and the cessation of momentum.

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