Knowing the mechanics of a trend reversal helps one sit tight and wait for better entries or exits. Today’s big gap down was very tempting for me to exit my short positions. But exiting a short is subject to the same principles as entering a long. We want to make with-trend trades, unless some kind of reversal pattern is detected.
Here we see the down channel was broken at point A. Do I exit my shorts there, or equivalently, should I enter long there? Wait for the low to be tested, as seen at point B. This is a lower low, and is duly followed by a 2-leg rally and subsequently established an up trend.
This is just an intraday chart. Will it be some kind of a bottom? Looking at the daily chart below, it certainly can use a bounce to backtest the broken supports.