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Hi,
Al says that in this case, you should wait for 2nd signal. But I also saw this setup as being a second leg trap in a TR, in which case the first signal could be sold (see also Encyclopedia Part 14 slides 78 and 79).
Some help anybody?
Marvin
Second leg traps usually have a good SB which (many times) is an inside bar, like slide 78 in part 14, and more important the bull bars are much bigger compared with the preceeding ones. In this chart, they are not really big and you have a doji for SB, so this is most likely not a bull trap but just the top of a TR and a Wedge.
The two bull bars were enough to be a surprise, and get at least a small second leg up, but not enough to trap bulls, specially without a good bear SB so you could either sell with a wide stop, wait for a bear bar closing on the low or wait for the second entry after the likely second leg up.
It is a TR, and may very well be a 2nd leg trap, however it is the 3rd push up and a contracting triangle which is BO mode. However you look at it, since I see it as BO mode, at this point there is only a 50% chance it will reverse back into the TR. I would wait for a second sell signal because of the strength of the bull bars and to increase the probability of the short, whether you see a 2nd leg trap, wedge reversal or a failed BO. If you get a second signal your probability is now good enough for the short. The reason Al is saying wait for a second signal, if you do not get it, your premise may be wrong and you shouldn't take the trade.
If the 1st signal bar, was a big Bear reversal bar closing near its low and below the BO point, then I would feel a lot better about taking the 1st entry. A doji closing above the BO point is not good enough even with the bear follow through bar which might just be a PB from the BO.
"The two bull bars were enough to be a surprise, and get at least a small second leg up, but not enough to trap bulls, specially without a good bear SB so you could either sell with a wide stop, wait for a bear bar closing on the low or wait for the second entry after the likely second leg up."
So again, manage your trade correctly 🙂
