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New Pattern:3 Hills And A Mountain
A rare but very reliable pattern,with a close relation to Elliott wave theory and to Fibonacci extensions and retracements for key support and resistance areas.
The pattern has 2 trade setups: One short and one long...Actually it is 2 connected patterns.
First Pattern:Uptrend with 3 consecutive higher upswings,separated by retracements of a minimum of 50% to 61.8% of the previous upswing..so,we have 3 upswings and 2 downswings....the 3 Hills...After completion of the 3 Hills,draw a trend line connecting the lows of the downswings...
Short entry:A CLOSE below the trendline triggers a short entry.
Stop:Slightly above the highest top..usual,plus spread and slippage.
Target:62% of the distance from lower low of the 3 Hills to higher high(let`s call it AB).
Second Pattern:After completion of the 62% retracement,there is a reversal to the upside which rallies from 100% to 127% of entire 3 hills range(AB)..The Mountain...
Long Entry:Entry long at the 62% retracement...once touched,at above the previous bar High.
Stop:Slightly below 62% retracement low(let`s call it C)
Target:100% to 127% of AB..from C( D in the atachment)
My Comments:
1-The second trade(long) has much better reward to risk than the first(short),and,since it is the completion of a rare pattern,probably has a better probability of working too....So,focusing on this second leg can be a valid option.
2-I have seen retracements(not necessarily of this pattern,but of sequential highs) reach the 78.6% level,they usually stop in the 61.8% to 78.6% area,not necessarily at 62%,so,I would modify the entry and stop rules to take this possibilty into account,personally,I would use a CLOSE below the 78.6% level as stop..and would enter after prices have penetrated the 61.8%
to 78.6% area and then ,either at a CLOSE above the 61.8% level or at a CLOSE above previous bar high.
3-In case of taking the first trade(short) I would like to see at least 1.5:1 reward to risk,including spread and slippage..and ,once minimally profitable,I would move the stop to break even.
Sidenote: Did you notice the embedded Dragon pattern at the attached chart?
Regards
Simba
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Somos mortales hasta el primer beso..y la segunda copa de vino 
Last edited by SIMBA; 03-27-2008 at 09:27 AM.
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