Another Text Book Reversal

 

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.

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