Rolling chop breakout setup
WaveStructure issues 3 types of signals and offers a multitude of ways in which they can be traded. In a series of posts we will review a specific type of setup that we enjoy trading. It can be spotted relatively often and is a "bread and butter" setup for a lot of subscribers. It is a rolling chop breakout trade in the direction of the trend. Here is an example:
Since 2012 the price of the Danish jewelry manufacturer Pandora (PNDORA:DK) climbed up in a predictable fashion. We identified a competed 5-wave pattern on December 15, 2014. Price then began to fall in a "rolling chop" formation. This formation can be defined as a trading range with a slope to it. As you can see on the chart, by the beginning of February Pandora stock painted what perfectly fits with a zigzag correction within the Elliott wave definition.
On February 17, with a gap of 60 handles price broke above the channel containing the corrective move. The close above the top channel line was a signal to buy. Unfortunately in this case the runaway gap did not allow us to place a tight stop because the last structural support was way down (see wave 0 bottom). Pandora shares continued their bullish impulse and quickly reached the target at the third measure of the corrective channel (see parallel lines). This coincided with the top of the wave 1 move from the ensuing 5-wave advance.