This technique is more aggressive and provides a better risk to reward scenario. In this technique, you wait
for a candlestick to open and close above the trendline. If that happens, you enter at the open of the next
candlestick. Your stop loss is placed under the most recent low.
If you’re going to use this technique, I recommend moving your stop loss to break even before price makes it back up
to the breakout line. The breakout line often acts as resistance, so it’s a good idea to move your stop to break even,
as long as your trade still has a little room to breath.
The reason I haven’t continued to trade this technique is because the reward to risk is still not good enough.
The risk to reward scenario is better in this aggressive entry, but the strike rate is also lower because you’re
not waiting for the double bottom to be confirmed (with a breakout).
To get your profit target for this pattern, you measure from the resistance line to the breakout line.
Thanks for sharing the strategy. Usually, traders take their entry upon having a breakout at the last swing high, which is the neckline if we consider it as a double bottom. However, you have got a point since the price makes a breakout at the down trending trendline. This usually brings momentum. If we take the entry here, it would give us better risk-reward ratio. Winning percentage may decrease though.
Thank you for sharing this.
thanks for starting this thread, Carl
the wording you chose for the title also raises the bigger question of what is a “better” risk to reward ratio
we can all see that you think of it as bigger reward per unit of risk, rather than the opposite
you mean “higher reward”, really, when you say “better”
the opposite perspective is also an arguable one, though
two points are worth thinking about, in this context
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if you look at successful professional traders, and institutional traders, they tend to be the ones using a lower “R” and have higher win-rates - it’s quite striking - people posting in forums quite often advise others never to use less than a 1:2 risk to reward ratio (it’s awful advice, but that’s what they often say!), ignoring the fact that most retail traders who do this are losing money, while all the people siitting on trading floors, who are far more successful, are doing exactly the opposite
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many retail traders who fail, fail because their position-sizing is way too high for their expectancy - the low win-rates you tend to get with higher-reward ratios are terribly difficult for the average retail trader to handle, and most of them don’t really even know how to work out appropriate position-sizing for what they’re doing (they tend to estimate it from their perception of the “longest losing run foreseeable”, which is a horribly bad and inappropriate way to do it, but that’s what commonly happens)