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The push off the fifth contact didn’t last very long as it barely made it less than half way, when it turned down back to the lower trendline. When it finally made the touch to the lower trendline, it has been confirmed as a high failure. This means that the parallel channel was failing and the pattern was about to end. The market gives signs that either the market is about to consolidate or reverse. Although, this indicates a short is imminent, it is too early to take a trend until another confirmation is made: a lower high or a confirmation of the lower trendline to go from being a support to a resistance line.

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The short entry is made when the prices moved back to the lower trendline to use it as resistance. When it touched the trendline and reversed, breaking the previous bar’s low, it was a clear signal to short.

The stop is set at just above the trendline above the highest high of the bar (2 bars before the entry). This will ensure if the pattern was a fake-out then the short entry will assumed as premature or wrong. This profit target was chosen because it’s a very clear support level. The 2nd profit target is chosen as it is ideal as it sits at an even round number, 900. In addition it’s a clear support from the last reversal area.

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Almost immediately the first profit target is reached with a big gap down. Partial profits are taken immediately and a trailing stop for the last part of the position is moved to just above the bottom of the gap, 912. If this point if breached then the full position is liquidated. But prices hovered below this gap in the next few bars as seen above.

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After the consolidation, the downtrend continued and reached the 2nd profit target to exit completely from the market.

Parallel channels are seen in almost all the timeframes and the entries and exits are clearly visible. This pattern provides a very good risk/reward ratio, making it an easy strategy to follow. The trick is to find them and watch for them to develop into a low-risk setup to take advantage of them.