I’ve written about the 1,2,3 Bottom trade, one of my favorite reversal patterns. Now, I thought I would show a 1,2,3 Top trade. Now that the market has had a rally, I’m starting to see a few of these appear. In the case of T–my last week’s Spike trade–things stalled out around 27. The Hi #1 happened in late March, note how high the 13-day FI spiked. At that point, we sold off, retracing to 25 (#2) , which undercut at least 4 closes.

Then, like an old one-eyed war horse, T gathered itself for one more run for glory. However, 27 (#3) was the wall again, and T formed the Narrow-Range 4 bar. This is the small inside bar to the right of the long-range stab to 27. It is the narrowest bar of 4 days and indicates a collapse of volatility, which should lead to another long-range bar. In this case, it lead to two declining medium bars. Note the divergence in 13-day FI on the second stab to 27. From there it was easy, sell short at the low of the Narrow-Range bar, take profits at the rising 20 DEMA (red line); treat yourself to a nice bottle of cabernet.