Any particularly patient readers will recall that I posted details of a buy set up in this stock back on 30 November. This was an example of a W reversal buy using Bollinger Bands.
Following the strategy outlined, would still have you long. However, there may well be a set up in the opposite direction today so I thought a quick post may be of interest.
This set up uses the fact that the upper and lower Bollinger Bands are measures of standard deviation away from the moving average. They give a good guide to trend momentum.
A bullish reversal involves a double bottom or W like formation where the first trough is under the lower band but the 2nd is above it. This indicates that the down trend is losing momentum and gives a reason to enter the reversal trade early .
One way of handling your exit strategy is simply to trail your stop up behind any new trend troughs. A filter can be applied to the trend trough placing the stop a bit behind it rather than right below it. This cuts down the number of times you are stopped out on a false break
Applying this strategy you would still be long. Now though, we have a potential bearish reversal set up following this strategy. As the chart shows price made a peak well above the upper Bollinger Band but the next peak was well below it. This peak would be confirmed by a close below Friday’s low
A common strategy here is to sell if the trend peak is confirmed rather than wait for the stop at 2.66 to be triggered. If there is a sell reversal set up there is no point staying long. If there is a valid set up, this is a situation where your strategy can be to not only take profit on the long position but also reverse the position and go short