Trading Spike and Ledge Pattern

Trading Spike and Ledge Pattern

The example above illustrates a "Spike and Ledge" pattern from the QLogic (QLGC) daily chart. QLogic made a new "high" in November, 2006 and closed near $23. The last few days in November, 2006 were of high volume trading. After making a new high, QLogic attempted to sell-off and formed a "Ledge" pattern with matching highs and lows. In January 2007, QLogic broke out of the "Ledge" pattern and presented a "short" trading opportunity.

1. Enter a "short" trade below the low of the breakdown bar at $21.50

2. Place a "stop" order above the high of the "ledge" pattern at $22.50

3. Target the major "swing low" prior to the "spike" at $ 19.

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