Trading plan for a broadening top pattern or the megaphone pattern.
Compare the high starting the first move down to the high at point 2. It is a higher high, then we go to the next high point 4 and see that it is even higher. The S&P500 emini futures is playing into a technical trading pattern known as the megaphone.
What are the Characteristics of the bullish megaphone pattern?
The characteristics of a megaphone is that the highs are getting higher and the lows are getting lower on 2 consecutive legs of a trading chart.
Compare the high starting the first move down to the high at point 2. It is a higher high, then we go to the next high point 4 and see that it is even higher. The Lows at point 1 and point 3 are relatively the same. Drawing a trend line from the beginning to point 2 and 4, and then a supporting trend line from Point 1 and 3 you can see that the form diverging, this is called the megaphone pattern. The most optimal one would have the lows at point 3 lower but being the same also is a key to the pattern.
Point 4 is the temporary new high with a 61% pullback or retracement to point 5. This sets up the Green Zone where we can see the pattern from point 1-3 repeat or a break to new highs after a pull back to 50% of the distance of the move from point 4 to 5. Note the green supporting line at 2070. If this acts as support, then we might see a break of the top in the near term with a target to 2140.
Incorporating the bullish megaphone pattern into your trading plan.
If price breaks the support of the green zone, then watch for a move to 2000, the pschological support and where the 200MA is headed, and then further retrace to 1960. There is an open gap at 1940 that has not been filled. Remember to do your own work, study the charts and if you don’t know what you are doing, don’t trade. Trading is high risk, and you need an executable trading plan.
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