The Perfect Short: $MEOH
Hi Fellow Risk Takers,
For those who trade using Chart Patterns, you will realize soon enough that real life charts look quite different from theoretical patterns mentioned in Chart Patterns literature.
Here is an "Perfect Short" idea where price action are clear as day and a few separate chart patterns come together to build a solid projection to go Short.
[1] Price for Methanex (MEOH), has been trading along an uptrend line from Nov 2012 to Oct 2014.
Price has traded from $30.00 to as high as $72.50 during this period.
[2] We note a clear Double Top formation with a Neckline of 57.00, between Jan 2014 to Oct 2014.
This Double Top formation was confirmed on Nov 2014, when price convincingly traded past the neckline of 57.00 and broke out lower.
Double Top is a trend reversal pattern. Therefore it clearly indicates that the Bullish trend mentioned in [1] is over and a Bearish trend has now been established.
[3] We also observed a clear Elliott Wave Pattern forming, with Price current in "Wave 4" corrective wave.
For the Elliott Wave pattern to complete the formation, price will have to breakout lower for the last impulsive "Wave 5".
[4] Last but not the least, we observed a potential Inverted Flag pattern, as illustrated.
Flag patterns are "trend continuation" patterns.
Hence, if this Flag pattern is confirmed with a breakout on the downside, it indicates intention for market to "continue" the current bearish trend and trade at lower prices.
[Projection]
We establish current trend is bearish, as the bullish trend mentioned in [1] is reversed by the double top pattern in [2].
The combination of a potential Elliott 5 Wave Pattern [3] and a likely inverted Flag Pattern [4] provides a strong case that price is very likely to breakout lower.
[Entry Condition]
When market can convincingly trade and sustain price below 42.15.
Please record the date this condition is met, as it will be used to time the exit of the short trade.
[Stop Loss]
Above 46.00
[Profit]
Conservatively around 32.50.
This target is determined by measuring the move of Wave 1 and Wave 3, followed by projecting to the nearest significant price level.
[Time Limitation]
All short positions must be closed within 11 trading days, after the Entry Condition is met.
Rational: If this is a genuine breakout, it should move quickly downwards with a speed similar to Wave 1 or Wave 3, if not faster.
Any slower price action will hint of a possible false breakout, hence using time limitation is a method of reducing the risk of loss.
[Risk]
No matter how nice and clearly illustrated the chart is, there is always a possible risk of a false break out.
[References]
Elliott Wave>
stockcharts.com/school/doku.php?id=chart_school:market_analysis:elliott_wave_theory
elliottwave.com/freeupdates/archives/2011/07/06/Using-Elliott-Waves-As-Simple-As-A-B-C.aspx
Double Top Reversal Pattern>
youtube.com/watch?gl=SG&hl=en-GB&v=t6ldRw_k4ss
onlinetradingconcepts.com/TechnicalAnalysis/ClassicCharting/DoubleTop.html
Flag Continuation Pattern>
stock-trading-infocentre.com/flag-patterns.html
thepatternsite.com/flags.html
For those who trade using Chart Patterns, you will realize soon enough that real life charts look quite different from theoretical patterns mentioned in Chart Patterns literature.
Here is an "Perfect Short" idea where price action are clear as day and a few separate chart patterns come together to build a solid projection to go Short.
[1] Price for Methanex (MEOH), has been trading along an uptrend line from Nov 2012 to Oct 2014.
Price has traded from $30.00 to as high as $72.50 during this period.
[2] We note a clear Double Top formation with a Neckline of 57.00, between Jan 2014 to Oct 2014.
This Double Top formation was confirmed on Nov 2014, when price convincingly traded past the neckline of 57.00 and broke out lower.
Double Top is a trend reversal pattern. Therefore it clearly indicates that the Bullish trend mentioned in [1] is over and a Bearish trend has now been established.
[3] We also observed a clear Elliott Wave Pattern forming, with Price current in "Wave 4" corrective wave.
For the Elliott Wave pattern to complete the formation, price will have to breakout lower for the last impulsive "Wave 5".
[4] Last but not the least, we observed a potential Inverted Flag pattern, as illustrated.
Flag patterns are "trend continuation" patterns.
Hence, if this Flag pattern is confirmed with a breakout on the downside, it indicates intention for market to "continue" the current bearish trend and trade at lower prices.
[Projection]
We establish current trend is bearish, as the bullish trend mentioned in [1] is reversed by the double top pattern in [2].
The combination of a potential Elliott 5 Wave Pattern [3] and a likely inverted Flag Pattern [4] provides a strong case that price is very likely to breakout lower.
[Entry Condition]
When market can convincingly trade and sustain price below 42.15.
Please record the date this condition is met, as it will be used to time the exit of the short trade.
[Stop Loss]
Above 46.00
[Profit]
Conservatively around 32.50.
This target is determined by measuring the move of Wave 1 and Wave 3, followed by projecting to the nearest significant price level.
[Time Limitation]
All short positions must be closed within 11 trading days, after the Entry Condition is met.
Rational: If this is a genuine breakout, it should move quickly downwards with a speed similar to Wave 1 or Wave 3, if not faster.
Any slower price action will hint of a possible false breakout, hence using time limitation is a method of reducing the risk of loss.
[Risk]
No matter how nice and clearly illustrated the chart is, there is always a possible risk of a false break out.
[References]
Elliott Wave>
stockcharts.com/school/doku.php?id=chart_school:market_analysis:elliott_wave_theory
elliottwave.com/freeupdates/archives/2011/07/06/Using-Elliott-Waves-As-Simple-As-A-B-C.aspx
Double Top Reversal Pattern>
youtube.com/watch?gl=SG&hl=en-GB&v=t6ldRw_k4ss
onlinetradingconcepts.com/TechnicalAnalysis/ClassicCharting/DoubleTop.html
Flag Continuation Pattern>
stock-trading-infocentre.com/flag-patterns.html
thepatternsite.com/flags.html
Related publications
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.