Typically we look to trade in the direction of the underlying trend as that increases our probability of success, however, occasionally lower-probability counter-trend trades offer reward/risk scenarios that are ridiculously skewed in our favor. Today we’ll be looking at some of those setups where there are bullish momentum divergences and failed breakdowns that help us to define our risk and put probability in our favor.
A good example of this type of setup is Unichem Labs. Prices have been range-bound for most of the last three years and have been declining for most of 2018. Last week they undercut the 2017 lows and quickly reversed, confirming the potential bullish momentum divergence and failed breakdown. This suggests being long if prices are above the prior lows of 236, with a target near the middle of the range at 285.
Click on chart to enlarge view.
Here is a list of stocks offering a similar opportunity on the long side:
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