EOS prospects & triangle: How to trade fake-outsjust now
Situation:
EOS is currently still correcting. WXY has just finished, and after it hit a big support it bounced up, and is now forming an indecisive correction pattern (Triangle or ABCDE). Triangle's are relatively easy to trade so i've set up some important price levels in the chart that will be decisive as to which direction the price will be going once crossed / touched.
How to trade:
Triangles these days are full of fake-outs. Some people say it's because many people are watching the same patterns, which makes them destined to fail. I don't know the true cause, but it doesn't really matter. We just have to find ways to capitalize on it.
Once the 2nd top / bottom of the triangle is broken the chance of a real breakout is higher than when it just breaks the converging diagonal. Break of the 2nd top / bottom almost always results in break of the triangle high/low. So it doesn't make the strategy much better by only buying the breakout of the high / low, since the risk to reward will also decrease and therefore lower the profitability of the strategy. Buying the 2nd top / bottom breakout, will protect us more against fake-outs, than buying when it just breaks the diagonal, and then break to the other side.
What if:
1. The 2nd top breaks, but it does reverse:
Fake-outs are almost always followed by breakout to the other side. So we put our stop loss not on other side of the triangle, but on the last 4h low of the fake-out rally up / down. Since we don't know this yet, its difficult to tell now, but usually it's a stop which is 7-10% below entry.
2. The triangle breaks up, but doesn't reach target:
We have to manage the trade on the 4hour timeframe. Conservative traders can take (partial) profit on price/oscillator divergence or other signs of reversals (news, bitcoin -0.87% -0.77% breakdown, etc).The amount of profit you take is based on your risk appetite. Every reversal signal you get should result in you taking partial profit. Once price eventually does reach your stop-loss, you can exit at least with some profits.
3. Triangle breaks up, and reaches first target:
You should take partial profits here. You can close your entire position or just take partial profits, all up to you.
4. Triangle breaks down, and reaches big support:
I wouldn't like a scenario of a breakdown, because the big support is decreasing the risk to reward on this trade. If it does break down you should take partial profit at the big support, and then either get stopped out on the rest of your short, or wait till it reaches the triangle target / demand zone . Make sure you took enough profits to be net positive once you get stopped out.
Target:
Break up:
The min target is 26%, with a potential of much more (6:1+). The Risk to reward of this trade is at least 3:1, depending on the location of the stop loss (4H low of the rally up or down).
Break down:
The min target is like 10%, and the max target around 30%. This will result in about a 1:1 - 3:1 R/R.
ALTERNATIVE PLAY:
Wait for a fake-out to occur, and once it breaches:
1. The 4h higher low. or
2. the diagonal on the other side or,
3. The 2nd low/high of the other side.
open a position aiming the opposite targets.
Again, scenario 1,2,3 is based on your risk appetite, with scenario 1 being highest risk, and 3 lowest.
I will try to update it once price progresses in time.
Good luck traders!
