Answers to Setups and Strategies in Bottoming Patterns – Part 2

Today let's review your answers!

At “A,” what is a “Wide Range Ending Bar” and what does it suggest, particularly in this pattern?

A Wide Range Bar (WRB) is a wide range candlestick with a large real body (compared to others) with little to no tails.  WRBs are power bars, particularly from consolidation.  “WRB Ending Bars,” however are the largest big candlesticks after a momentum move and far from the 20-MA.  The bearish WRB (-WRB) on Major Support, after a huge decline, suggested the end of the move lower in the short term, so to monitor price action for confirmation.

What happened during the following nine trading days trading within the range of this “Wide Range Ending Bar?”

They were all bullish consolidation days since the -WRB Ending didn’t follow through lower and, instead, went sideways building a base of support (selling/supply was exhausted and buyers stepped in at these prices).

At “B,” what does the bullish close suggest and what trade strategies are you thinking?

TSLA gapped up and closed with a +WRB, which is bullish.  Think bullish option strategies, Directional and Income.

At “C,” it closed with a bearish topping tail (TT) at resistance and the 200-MA.  What does the close suggest and what trade strategies are you thinking?

The TT occurred after trading over a prior red candlestick so it then suggested a minor Breakout Failure (a short-term high at resistance).

At “D,” it gapped down and closed with a bullish engulfing +WRB.  What does the close suggest and what trade strategies are you thinking?

The +WRB was definitely bullish, particularly negating the gap down, but with the resistance to the left, although not a good directional trade, it would be proper to consider selling puts or a put spread under the low of the +WRB.

At “E,” it opened relative flat and closed with a huge +WRB engulfing bar.  What does the close suggest and what trade strategies are you thinking?

That was a monster +WRB, the biggest on the chart shown, so start monitoring for bullish entries on a retracement or continuation pattern since the +WRB was too big to consider bullish positions over the high of it.

At “F,” why is this now marked Major Support (MS) in a sideways trend?

In sideways trends, we define MS as three or more pivots in the general horizontal area.  This reversal was the third one at prior ones, making it a significant MS, confirming the wide sideways trend (start of a bottoming pattern).

At “G,” why is this called a +180 bullish reversal?  What happened during the following 10 trading days trading within the range of this +WRB and what’s your bias then?

Master Trader defines bullish +180 reversal (+180) as a +WRB immediately following and negating a -WRB.  This was a quality one since it occurred on MS and after a very small New Low Reversal (small Shakeout).   The subsequent 10 days of consolidation was actually bearish since it was in the bottom 50% of the huge +WRB and retraced all the way back to the low of the +WRB and MS.

At “H,” why did we recommend to subscribers to buy the stock and why did we recommend legging into a covered call the following day?  Here’s the trade history:  “4/25:  TSLA - Bought the stock at $263.67. Anticipated Breakout of a bottoming pattern at the 20-MA, bullish retest weekly.    4/25:  Sold 1/3 at $285.79 for $20+ gain in one day.   Sold May (5/2) $305 calls for $4.40/share to leg into covered call and lower basis to $259.27.   4/28:   Move Stop $278.78.”

It was a bullish directional setup since the green candlestick closed over the high of the prior nice candles and then gapped up the next day where we recommended buying a 5-Min. high.  It had a Void to the Major Resistance (MR) area.  We legged into a covered call because of the big move to MR, which suggesting stalling, and selling the call reduced our cost basis and improved the probability of profit.

At “I,” there was a five-day bullish consolidation in the top half of a +WRB Breakout.  What does the close suggest and what trade strategies are you thinking?

It is bullish consolidation after clearing (slightly) MR; thus, if TSLA trades over this consolidation, bullish directional and income trades are warranted because of the bullish daily and weekly consolidation and Price Void above.

At “J,” what do the moving averages that we use on daily charts (20, 50, and 200-MA) suggest about a potential bottoming pattern?  Is TSLA a compelling Bottoming Pattern?  Why?

The 20-MA flattened out for two weeks and the 50-MA is slowing leveling out because of the multi-week consolidation.  It is a very compelling bottoming pattern – provided it trades over the recent highs.  Because of the huge 50% collapse of TSLA over the prior months, it left a big Void and should move to a new uptrend from this bottoming pattern (sideways trend) with a closing breakout.

What is the pattern of the weekly chart of TSLA and does that support the current bullish pattern if it breaks through resistance?

The weekly chart is a beautiful reversal on MS after a Climactic Buy Setup.  This Multiple Time Frame (MTF) alignment and weekly Void supports a Breakout on the daily time frame if it occurs.

At “K,” what are you thinking when the Climactic Buy Setup and reversal at the 200-MA failed?   What does the close suggest and what trade strategies are you thinking?

The failed CBS confirmed continued weakness (supply overwhelming demand).  Because TSLA still had a price void below to MS (where it did reverse with th e-WRB Ending), it turned out to be what we call a Measured Move pattern, where traders could have considered bearish option strategies.

Well, how did you do!?  

Marking up charts is a great way to learn, and you should also do this on all closed trades as part of your seasoning development.

E-mail dan@mastertrader.com with any questions.