In this post, we would delve into the sebenth Berish Setup - 3 Lower Lows. This is a 3 candlestick continuation pattern that completes on C4 and a play on bearish momentum.
To be tradable as per our strategy, the following conditions need to be met, part of trade selection.
The setup forms on completion of C4 @ 5PM or C5 @ 7PM. The signal should ideally be taken on C4 irrespective of DST. Entry at C5 is discretionary and should only be taken if the risk is manageable (For example, if the price on C5 has already expanded, then the risk of reversal increases).
Out of the 4 completed candles, at least 3 should have real bodies and lows lower than the prior candle. Any one candle from C1 to C4 can be an inside doji or narrow range candle.
The pattern is stronger if it forms as a breakdown from a strong bearish pattern like a Head & Shoulder or a 1-2-3 Top on the same day or the subsequent day. The breakdown lends momentum to the setup to go lower. However, you need to be careful if you see successive long red candles breaking way below the breakdown as then the chances of reversal are higher. What we are looking for is a combination of long and medium range candles.
There should be sufficient room to decline before encountering resistance. A pattern forming very close to strong underlying support may not work hence avoid.
Always keep the bigger trend in mind. You should be ready with the weekly and daily view of the chart beforehand. If both are positive, avoid short trades. Take the trade if at least one of these is negative or sideways with a bearish undertone.
By the time the candle completes @ 5 PM or 7 PM, you should have already made up your mind whether to take the trade or step aside, very very important. If you cannot make up your mind, it is best to step aside.
Chart Examples : Please study the following chart examples carefully, across commodities, paying attention to the annotations which explain the price action behind the setup. Observe carefully what happens after the trade is executed.
Trade dynamics in terms of number of lots, Stop Loss, Price Targets by lot and the profit/ loss of the trade is also provided in a table below the chart. Please revisit once we have covered these in the section on Strategy as it would make better sense then.
Win Ratio: The table below provides the Win Ratio for this setup for different commodities, a key component for trade selection.
As is clear from the numbers above, the setup can be successfully tradede for Crude and Copper, however, discretionary for Aluminium, N Gas and Zinc.
Now that you know the setup, please look for similar setups on the 2H charts for our chosen basket of commodities. Please share your observation in the Comments along with an image of the chart that you are referring to. We will revert with our comments.
Please click on "Next Post" to move to the eight and the last of the Bearish Setups - Big Red and 2 NRs below MA.
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