For this pattern to be valid, the following features need to present:
- The market forms a compression or a triangle at a KL.
- It breaks one side of the triangle, hits a KL and then reverses.
- The trade is a break of the other side of the triangle,
- As in this case, it’s usually best to wait for a retest of the line and then a rejection as this gives a better entry and prevents whipsawing.
The trade is best taken in line with the short-term trade, but can also be used counter-short-term trade and with long-term trade, especially if there is plenty of white space above/below the entry.
This trade setup during a strong up move in an overall downtrend. The market has broken a KL the day before and maintained gains