Similar to a post I put up last week for Television Broadcasts in Hong Kong , this setup is based on a fairly simple resistance level but I like the look of it because of the number of times this level has been tested – sometimes called an inflection point. You will see quite a few of these as you scan the market but it’s always nice to see a little bit more in terms of evidence and I think you will see what I mean when you take a look at the chart below:
On top of this there are a couple of other considerations here. First, the is the candlecticks. There is quite a good engulfing pattern that formed the latest peak and in addition the gap down on the following day is another bearish signal. You will not that both the Stochastic Oscillator and the RSI are also heading in the right direction.
I think the trader would look toward a short below the closing price of the last candle ($7.74) with a stop at around $8.10. The target I am looking for on this trade is $7.15 which would mean that we don’t have to test the next support level down but you may take a view based on the next major dip which would give you a significantly larger profit target – I leave that up to you. My setup gives a risk:reward of about 1:1.25 which I agree is not massive however I am typically OK with these when dealing with narrow range trades. Of course if this is outside of your boundaries then simply move on to the next trade.
Let me know if you have any issues,