21 Dec 11 - GBP/USD - M15 -Bearish Bat Type 2 Reversal

Following the brief Type 1 Reversal from the Bearish Bat Pattern, the price action went back to retest the pattern's PRZ to offer another opportunity for a trade.

Since I was previously having some difficulties, I have decided to experiment with a few different entry techniques which will be discussed in the Proximate timeframe section.

Breaking the whole pattern setup down:

Distal (H1)

At the point of the Type 2 Reversal setup, the Distal timeframe looks more promising this time round as the RSI has rolled out from the extreme overbought region.

With the 0.50 Fibonacci Retracement Level acting as a resistance and the RSI coming out of the overbought region, this was my confirmation for a trade.

Primary (M15)

When it comes to the Primary timeframe, things just got better. Firstly, it was very obvious there was a divergence. In addition, the structural validity of the pattern was still intact as the price reversed at the 1.0 Fibonacci Retracement Level which meant that the pattern was valid. In addition, the RSI divergence was also indicating that there was an internal weakening in this pair.

Proximate (M5)

Having the confirmation from the Distal and Primary timeframes, this is where I decided to experiment with the various entry techniques.

1. Candlestick Patterns in the absence of RSI extreme test conditions

In the attached chart, my cue to go short in this technique was in view of a Bearish Engulfing Pattern while having in mind that the RSI was trending down. In other words, there was not much confirmation in this case except for acknowledging the candlestick pattern as a confirmation. This proved risky as following this entry, price continued to rally and the trade took quite a bit of heat and risked having the Stop Loss triggered. Therefore, this is definitely a no go for future trade executions.

2. Trade execution with a RSI divergence

For this method, I would consider this an early entry where I will have maximum potential while having lesser confirmation. After triggering the trade, price was able to hold around the area and fall. This technique can be considered as the main confirmation here was the RSI divergence which gave me the confidence.

3. Trade execution with RSI divergence and Trendline violation.

In the last entry technique, it offers a lower risk when it comes to the execution. However, with more confirmation, we will have to pay the price of having a later entry which we mean that we can only trigger only at a lower price. (Despite a lower price, I was still triggering above the PRZ). This would probably be my preferred technique as it gives me more confidence when it comes to taking a Type 2 Reversal Trade.

Trade Management


In terms of the trade management, the trade was closed when the price action violated the Accelerated Trendline. Regardless of what will happen later, be it that the price will crash after I square off the trade, it does not matter to me already as it was all done in the line with the Trade Management rules.

All in all, the trade gathered 26.8 pips in profit for my preferred entry technique while another 36.8 pips for the more leading entry (Technique 2).