How to trade the major bearish trendline?How to trade the major bearish trendline?
The major bearish trendline consists of three corrective waves according to the Elliott wave principle. The three major corrective waves are labeled as Leg A, Leg B, and Leg C.
The common characteristics of Leg A
Leg A will form a top formation like a double top, a head and shoulder top pattern, or a triple top pattern.
The common characteristics of Leg B
The security price will trade in a narrow range during Leg B. Traders will accumulate the security at a low price and sell the security when the price reaches the previous major resistance price.
The common characteristics of Leg C
The price of the security will drop to a new low price, or the security will drop to the previous major support, or drop to the major bearish trendline. The major bearish trendline is an important line to draw. A trader should extend the major bearish trendline into the future.
Which side should a trader trade when a trader recognizes this is a bearish trendline formation trade?
A trader can improve his or her profitability by going with the trend. With a bearish trendline formation, a trader should be bearish. A trader should go short when the situation is right to go short. A trader should avoid going against the bearish trendline pattern because a trader doesn't want to be trap in a long position when the price starts falling more. Traders with a current long position need to make a tough decision to liquidate their position to avoid further price drop and further losses.
"Do not go in the opposite direction of the freeway!" Therefore, do not trade in the opposite direction of the trend!
Thank you for reading!
Greenfield
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Disclosure: Article written by Greenfield. A market idea by Greenfield Analysis LLC for educational material only.
