3 to 1 Risk/Reward Ratio Trading Idea for $CTRP
(1) CTRP Has been trading in a general uptrend from May 2013 to around Nov 2014. Price has risen from $20 to as high as $68 during this period.
The uptrend was convincingly broken on 01 Dec 2014, when price closed below the trend line and did not perform a false break move.
(2a) We observed that breaking of the trendline in (1), is essentially a clean break out confirmation of a Head & Shoulder Reversal Pattern, with a upwards slanted Neckline.
Being a trend reversal pattern, this means that the Bullish trend in (1) is effectively over and a Bearish trend is now established.
(2b) One characteristic of Trend Reversal patterns is that half the time, price will pullback to the neckline after the initial breakout.
For CTRP we note a similar retracement move to about $50 and is now looking to trade lower.
Experienced traders should be familiar that pullbacks of reversal patterns provides excellent entry conditions for a continuation breakout move.
(3) We also note the development of a possible Elliott 5-Wave pattern.
Waves 1-4 is done and a breakout on the downside will complete the 5th Impulsive Wave of the Elliott Wave pattern.
(Projection)
Given that:
i) we have the breaking of the uptrend line in (1) by a trend reversing Head & Shoulder pattern in (2)
ii) The breakout moves so far fits closely to the description of an Elliott 5 Wave
We project that prices are most likely to perform a bearsih breakout move to bring prices much lower.
(Entry Condition)
Anytime from now, as long as prices are trading below 45.90.
(Stop Loss)
Above $48.00.
(Trailing Stop)
Use a trailing stop of $5.00.
This is calculated based on (2 Days x Estimated ATR(14) of $2.50).
The idea behind this trailing stop is to protect your capital in the event of a false breakout move.
Also, professionals will never allow a winning position to become a losing position, so it is something worth practicing.
(Taking Profit)
Step 1: Close 50% of the position when price reaches around $40.00.
This is intended to lock in some profit, in case this becomes a false breakout move.
Step 2: Close the remaning 50% position when Price is around $30.20.
This level is simply based on extended support levels.
Advanced Step 2: We can also look to take profit when RSI(14) on the daily chart is close to 23.0000 levels.
(Time Limit)
All open Short Positions must be closed by 13 April 2015.
The rational is that we are projecting a swift breakout move on the down side to happen shortly.
If price is unable to reach the stated profit targets by that 13 April 2015, then it is likely to be a weak/ false breakout.
Hence it is better to assume the worst and protect your capital by closing off all short positions.
There will always be other trend following breakout opportunities to deploy your capital to.
(Risk)
As always there is a risk of a false breakout move.
There is also a risk that the upcoming earnings release, "expected" on 19 March 2015, have a positive impact on price and bring prices higher.
(References)
Risk Reward Ratio>
investopedia.com/terms/r/riskrewardratio.asp
Learn the Basic Elliott Wave Pattern>
youtube.com/watch?v=bDLxjM_RnnM
How The Pro's Trade Head & Shoulders Chart Pattern Analysis>
youtube.com/watch?v=cf80pXwlda0
Using Support and Resistance Levels of Relative Strength Index>
Technical Analysis for the Trading Professional by Constance Brown, Chapter 1: Oscillators Do Not Travel between 0 and 100.
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The uptrend was convincingly broken on 01 Dec 2014, when price closed below the trend line and did not perform a false break move.
(2a) We observed that breaking of the trendline in (1), is essentially a clean break out confirmation of a Head & Shoulder Reversal Pattern, with a upwards slanted Neckline.
Being a trend reversal pattern, this means that the Bullish trend in (1) is effectively over and a Bearish trend is now established.
(2b) One characteristic of Trend Reversal patterns is that half the time, price will pullback to the neckline after the initial breakout.
For CTRP we note a similar retracement move to about $50 and is now looking to trade lower.
Experienced traders should be familiar that pullbacks of reversal patterns provides excellent entry conditions for a continuation breakout move.
(3) We also note the development of a possible Elliott 5-Wave pattern.
Waves 1-4 is done and a breakout on the downside will complete the 5th Impulsive Wave of the Elliott Wave pattern.
(Projection)
Given that:
i) we have the breaking of the uptrend line in (1) by a trend reversing Head & Shoulder pattern in (2)
ii) The breakout moves so far fits closely to the description of an Elliott 5 Wave
We project that prices are most likely to perform a bearsih breakout move to bring prices much lower.
(Entry Condition)
Anytime from now, as long as prices are trading below 45.90.
(Stop Loss)
Above $48.00.
(Trailing Stop)
Use a trailing stop of $5.00.
This is calculated based on (2 Days x Estimated ATR(14) of $2.50).
The idea behind this trailing stop is to protect your capital in the event of a false breakout move.
Also, professionals will never allow a winning position to become a losing position, so it is something worth practicing.
(Taking Profit)
Step 1: Close 50% of the position when price reaches around $40.00.
This is intended to lock in some profit, in case this becomes a false breakout move.
Step 2: Close the remaning 50% position when Price is around $30.20.
This level is simply based on extended support levels.
Advanced Step 2: We can also look to take profit when RSI(14) on the daily chart is close to 23.0000 levels.
(Time Limit)
All open Short Positions must be closed by 13 April 2015.
The rational is that we are projecting a swift breakout move on the down side to happen shortly.
If price is unable to reach the stated profit targets by that 13 April 2015, then it is likely to be a weak/ false breakout.
Hence it is better to assume the worst and protect your capital by closing off all short positions.
There will always be other trend following breakout opportunities to deploy your capital to.
(Risk)
As always there is a risk of a false breakout move.
There is also a risk that the upcoming earnings release, "expected" on 19 March 2015, have a positive impact on price and bring prices higher.
(References)
Risk Reward Ratio>
investopedia.com/terms/r/riskrewardratio.asp
Learn the Basic Elliott Wave Pattern>
youtube.com/watch?v=bDLxjM_RnnM
How The Pro's Trade Head & Shoulders Chart Pattern Analysis>
youtube.com/watch?v=cf80pXwlda0
Using Support and Resistance Levels of Relative Strength Index>
Technical Analysis for the Trading Professional by Constance Brown, Chapter 1: Oscillators Do Not Travel between 0 and 100.
If You Like it, Please Share it, Follow it~
TradingView: BreakOutArtist
StockTwits: stocktwits.com/BreakOutArtist
Twitter: twitter.com/BrkOutArtist
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