In today’s lesson, we are going to demonstrate an example of a double top offering an entry, not right after the breakout. It rather offers an entry upon finding its resistance, which is well below the neckline level. Let us find out how that happens.
The chart shows that the price gets trapped within two horizontal levels. It produces a bearish engulfing candle but heads towards the North upon having a bounce at the level of support. The last candle comes out as a Doji candle around the resistance zone. Let us find out what happens next.
The chart produces a bearish engulfing candle closing well below the neckline. The chart produces an evening star to make the breakout. It suggests that the price may head towards the South with good bearish momentum.
The price heads towards the South with three more candles. However, the price does not consolidate around the neckline. Thus the sellers in the chart may find it difficult to go short in the pair. Let us wait and see whether it consolidates or not.
The chart produces two bullish corrective candles. If the price finds its resistance and produces a bearish reversal candle, the sellers may go short below the last swing low.
The chart produces a bearish engulfing candle closing well below the last swing low. The sellers may trigger a short entry right after the last candle closes by setting stop-loss above the candle’s highest high and by setting take profit with 1R.
The price travels a long way towards the South. The last candle comes out as a bullish inside bar. It is a weak bullish reversal candle. However, the way the price has been heading towards the South; it suggests that the price may continue its bearish move. However, many sellers may want to close their entries and come out with the profit after the last candle.
Usually, traders wait for the price to consolidate and produce a reversal candle at the breakout level. However, when a trend starts with a strong reversal pattern, such as the morning star/evening star, the price may not consolidate around the neckline level. Nevertheless, if the chart allows the price space to travel, traders may wait for the price to consolidate and to get a reversal candle to trade. This is what happens here. The price finds its resistance, not at the neckline but somewhere else, and produces a strong bearish engulfing candle offering an entry.