Before we go into the pattern specifics for this trade, it dawned upon me one day that as Traders, we must know what are our Trading Plans. For example, along the way comes Mr Z and he says that he has a hot tip to buy a XYZ share and that it would go up, most people will just think that there might be a chance to earn some cash, but have they thought of the following questions?
- What is the basis of a buy for this particular investment vehicle?
- Even if there is a sound basis in terms of fundamental or technical, what is the trading horizon like? A month, few months or even years?
- After that, have they considered the desired entry price range, the target profit or even the stop loss?
I am glad that trading has taught me many things and this is one of the lessons which I have learnt cos nowadays whenever I hear anyone saying that which stock is good, I will usually pull out a chart to see for myself. Although I am not trading stocks,but it serves as a learning experience for me. And in most cases, there were no basis for a good buy. This thought came to me when I was having a drink with my mentor and it was through this that I realised that the journey in trading ha changed me so much.
Having said all these, breaking the setup down:
Distal (D1)
On the W1 chart which is as seen below, it was a very nice setup which gave me an entry in going long on Gold as the completion of the pattern happened to occur at the same spot where price action met a support on the rising trendline.
A clearer picture could be seen on the attached D1 chart.
In addition, on the day of the trade execution, the RSI was seen coming out from the oversold area following a secondary retest of the area. The price action also has a lot to reveal here when the price action held above the rising trendline with a very long lower shadow signalling a price rejection at this area.
Primary (H4)
On this particular timeframe, this is where the pattern becomes a borderline case for a long position. However, since the price action held above the 1.0 XA region, I treated it as a valid pattern.
Observing the price action as the completion of the Bullish Bat Pattern before there was even a RSI validation, despite some price stabilization, the price action continued lower before having a RSI validation. Therefore, this exemplifies the importance of waiting for a RSI validation following a pattern's completion or that a RSI validation should occur prior to a pattern's completion which is ideal in most cases. In the attached chart, a zoomed out version of the chart which captured the pattern's completion which shows that much emphasis was put on the structural signal. With a valid structural signal, this is where I will consider a trade execution at minimum.
Proximate (H1)
When it comes to the proximate timeframe, this is where the price action following the test of the 1.0 XA Stop Loss region becomes obvious that a trade was possible.
Despite trading past the stop loss region, the price action reversed and stayed above the level. In addition, the RSI rolled out from the oversold region which gave us another validation to signal a trade execution.
The cue for triggering the trade came when the price action violated the descending trendline. In this case, the execution could have been around 1545 region but I had missed the entry only to trigger at 1557.87 which was around 12 points from the ideal entry point but since it was still below the PRZ, I would consider this entry to be acceptable.
The targets for the trade were defined as the in the attached chart.
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