Today I’m going to show you the Double Bar High Lower Close (DBHLC) pattern in action with a recent trade on USD/CAD daily time-frame.
So, take a look at this screenshot of my Metatrader4 platform:
So there was a DBHLC pattern recently formed (the red smiley face on the photo). And an interesting part about this particular pattern is its location: In the vicinity of a major resistance level.
Let me zoom out and show you this major resistance and the location of the DBHLC we’re discussing:
This gives context to our DBHLC pattern: The price was trying to break through the resistance level, but it failed. And then the DBHLC was formed. It signaled that the price has been rejected and was likely to fall.
And so, we could place our short trade at the low of the DBHLC pattern.
What about our profit target?
To answer this question, you must first understand what we’re trying to do here:
The long-term trend for USD/CAD is still bullish. So what we’re trying to here is only capture a short-term bounce from one S/R level to the next. We’re not trying to capture a whole new downtrend, because there’s simply no sign of trend reversal yet.
And if you pay attention to our chart, you’d notice that there’s a previous support level at 1.32200 that we could use as our take-profit.
If we use this level as profit target and place our stop just above the resistance level (that we discussed above), it would give our trade a very favorable Reward:Risk ratio of about 2.5 : 1. In other words, for every dollar we risk, the market could reward us with $2.5.
And as you can see, the market indeed went down and hit our take-profit level just a few bars later. A clean trade.
I hope this example shows you how to use Double Bar High Lower Close pattern, in combination with other important concepts like Support Resistance and good Reward:Risk ratio, to identify and then execute a profitable trade.
Until next time,