In this post, we would delve into the seventh and last Bullish Setup - 3 Higher Highs. This is a 3 candlestick continuation pattern that completes on C4 and a play on bullish momentum. It has a very high WIn Ratio for Energy commdities - Crude and Natural Gas.
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 highs higher 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 breakout from a strong bullish pattern like a reverse Head & Shoulder or a 1-2-3 Bottom on the same day or the subsequent day. The breakout lends momentum to the setup to go higher. However, you need to be careful if you see successive long green candles expanding way above the breakout 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 expand before encountering resistance. A pattern forming very close to strong overhead resistance 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 negative, avoid long trades. Take the trade if at least one of these is positive or sideways with a bullish 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 is highly tradable on Crude, N Gas and Zinc. Avoid for Copper and Aluminium.
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.
WIth this post, we have concluded our series on the seven Bullish Setups. Please click on "Next Post" to move to the first of the Bearish Setups - Bearish Engulfing.
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