Before we discuss the specifics of the reversal exit, let us first take up the entry on the pattern break pullback trade. The position could have been initiated above bar 2, which was a re-break of the dominant pattern line after a tease breakout had been forced to retreat (T-2). Note that prior to closing strongly outside the pattern line, our signal bar 2 had put in a textbook ceiling test with the high of bar 1. If for some reason not in on the break above bar 2, there was an opportunity to take position on the break of the breakout bar, just one bar later (pattern break combi variant). At times, the magnet effect of a round number can harbor an ironic twist. Initially it may pull a trade pleasantly in the plus, but then the area may start to hinder further progression. In this instance, prices had come to a halt just a few pip shy of our target, from which a pullback emerged (3-4). 158 a

Chapter 6 Manual Exits Reversal Exit As already repeatedly addressed, the first pullback after a fresh breakout is seldom reason to bail out of a trade. More likely, it forms an opportunity for latecomers to take position in line with the original break (the low at 4 was a technical test with the combi on the left and also a 50 percent correction of the breakout swing 2-3). So, initially, pullback 3-4 can be regarded as a bull-flag, which is a continuation pattern; prices indeed managed to break out topside, but thats about as far as it went. Instead of clearing the former high of 3, bar 5 suddenly took a nosedive from which it could not recoup before its close. Was this a sign to prepare for a reversal exit?

Looking closely, we can see that bar 5 not only put in a double top with bar 3 (lower top to be exact), it was a mean false high with its neighbor and it single-handedly completed the right side of the M-patterns middle-part. There were only six bars involved in this cluster (3-5), but in relation to its modest pole 2-3 this was quite a telling pattern. Since we aim to exit on a break, we can grant the market one last chance to shape up; but the very moment bar 5 is taken out, all hopes should be cast aside and our trade is best exited without further thought. Note that when bar 5 was broken, the actual low of the middle-part was not (4). To some this may have been reason to stay in the trade still, but in most cases I would advice not to resort to such optimism and to simply accept the message of the broken powerbar.

Note: To determine the degree of danger within adverse buildup, the harmony principle may help out once again. Just like we should avoid to trade a continuation break of a non-harmonious flag (in relation to its pole), so should we avoid to exit on a reversal break of a rather feeble middle-part (in relation to the left leg before it). What may help to assess the ripeness of this middle-part section is to see if we can already visualize the full patterns completion in symmetrical fashion. For example, with double-top progression 3-5 hanging rather harmoniously from the left leg 2-3, it wasnt very hard to imagine this pattern to be completed by a right leg that would more or less copy the swing of the left leg (5-6 mimics 2-3). Do recall, though, that the actual completion of the right leg is basically irrelevant, since the plan is to already deploy the exit on the break of the middle-part. When responding promptly to the signal 159