Chapter 3 - Setups for GFA Trading
3.1 Chart Setups: An Introduction to Deciphering Price Action
Before diving into specific chart setups, it is important to understand the basic structure and terminology used in this Trading System. This will ensure complete clarity as you move forward through the material.
Understanding Candles in This System
Whenever candles are referred to in this system:
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Intraday trading uses 1-hour (1H) candles
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Positional / swing trading uses daily (D) candles
This distinction is important, as the same concepts apply across both styles, but on different timeframes.
Intraday Trading Structure
The Global Financial Assets trade 23 X 5 (except for crypto which trades 24 X 7). However, we have defined trading windows depending on the type of Financial Asset. The timing of these windows has been chosen to coincide with the Asian, European and US market open when the price action lends itself to reliable trades instead of random noise.
The tables below capture the entry and exit time windows in Indian Standard Time (IST) for taking trades for each instrument that we trade. The first table is for trading in the morning/afternoon time zone (IST) and the second for the evening time zone (IST).
Note : Traders outside India can convert the trading window time zone provided in IST to the time zone corresponding to their location. It is strictly recommended to trade a specific instrument within the time window provided below.
Table 1 - Morning/ Afternoon Trading (IST)
* The time given above is the completion time of the hourly candle. For example, the 06:30 AM - 08:30 AM time zone starts with the hourly candle that starts forming at 05:30 AM and completes at 06:30 AM. The next candle in this time zone starts at 06:30 AM and completes at 07:30 AM. The third candle starts at 07:30 AM and completes at 08:30 AM. So altogether this tome zone consists of 3 candles representing 3 hours.
** DST is the practice of advancing clocks one hour during warmer months so that evening daylight lasts longer.It usually starts from second Sunday in March to the first Sunday in November in the same year (~ 8 months). The rest of the year is the no DST period (~ 4 months).
Table 2 - Evening Trading (IST)
@For entry at 10:30 PM - the exit time is extended by an hour to 01:30 AM to allow for a minimum of 3 hourly candles.
From the tables above, it follows that Gold, Silver and Nikkei can be traded in the morning IST, WTI Crude in the afternoon IST and all the instruments in the evening IST. For the evening session, the trading windows for different instruments have been staggered for the ease of trading so that all the trades do not open at once. For example - the trading window opens for Gold, Silver and BTC at 6:30 PM, for WTI Crude at 7:30 PM and for the indices at 8:30 PM.
Positional Trading Structure
The positional trades are taken in the morning IST (~ 6:30 AM to 8:30 AM) if a trade setup appears based on the previous day’s candle that closed late in the night IST. The trade is to be taken only after a proper analysis and only if the entry remains favorable at the time of entering the trade.
This is so because the trading day ends very late in the night IST which would require one to stay awake in the middle of the night, a highly infeasible proposition for a daily routine, for the traders based out of India. The trade should be initiated the following morning once a desired setup is discovered after proper analysis. In the meanwhile, if the price runs away early morning making the entry unfavorable, it is not advisable to chase the trade, rather avoid.
Your attention is needed during the specific time windows mentioned above, not continuously throughout the day. Assess whether you can comfortably trade during these times, particularly at night IST.
A Pure Price Action Approach
This trading system is built entirely on price action, without the use of technical indicators. While indicators are popular, they often lag behind price and can create conflicting or misleading signals, leading to noise and confusion.
By focusing only on candles, patterns, support/resistance and market structure, this approach aims to:
· Eliminate unnecessary complexity
· Reduce noise
· Provide a clearer and more direct understanding of market behaviour
3.2 Trading Setups – Intraday vs Positional
The following section outlines a set of bullish and bearish trading setups applicable to both intraday and positional trading. These setups are broadly classified into two categories—Mainstream and Proprietary.
The Mainstream setups are well-established patterns widely documented in technical analysis literature and commonly used by traders.
In contrast, the Proprietary setups are derived from the author’s experience and are the result of extensive observation of price behavior, particularly in situations where conventional setups fail.
These proprietary approaches focus on what is often referred to as the “trap effect”—scenarios where market participants are positioned incorrectly, leading to sharp and decisive moves in the opposite direction. When identified correctly, such setups can offer high-probability trading opportunities.
While the Mainstream setups are explained in detail in the sections that follow, the Proprietary setups are intended for traders with some market experience. Traders interested in gaining access to these advanced concepts may reach out to the author for further information.
Mainstream Setups
Proprietary Setups
3.3 Mainstream Trading Setups
There are six mainstream trading setups each for bullish and bearish trading which are described in detail below along with relevant chart examples, both for Intraday and Positional trading. All setups are applicable to both trading styles except for Setup 5 - Piercing Pattern and Dark Cloud Cover which is applicable only for Positional trading.
3.3A Mainstream Trading Setups - Bullish
Bullish Setup 1 - Bullish Engulfing
Bullish Engulfing is a two-candlestick reversal pattern that forms after a noticeable decline.
To be considered tradable within our strategy, the setup must meet specific criteria:
Key Elements for Trade Selection : A good trade should preferably meet most of the elements, based on the overall context of the charting landscape - if you are not sure, do not chase the trade.
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The bigger the size of the real body engulfing the real body of the prior candle, the stronger the setup.
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The more number of prior candles engulfed, the stronger the setup.
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Setup forming at prior support level adds to conviction. A confluence of supports is ideal. For example, a setup at the intersection of strong horizontal and gap support has higher odds of success than one at a simple double bottom (2B).
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A setup that forms as a part of a small consolidation (a range or a bullish chart pattern) after a substantial decline adds conviction. It signals that the consolidation may be over and the price ready to move northward. Avoid trades if the setup forms at no or weak support without any consolidation.
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A Bullish Engulfing forming within a narrow range or narrow consolidation without any preceding decline does not qualify as a setup. Avoid.
CHART EXAMPLES
Intraday
Fig 3.1 - 1H chart on Silver CFDs - The first setup occurs near the lower boundary of a narrow congestion zone that offers strong support. The second setup forms in a strong uptrend after a mild decline .
Fig 3.2 - 1H chart on WTI Crude CFDs - The first setup occurs near a double bottom preceded by a small hammer. The candle is strong enough to engulf all the candles formed earlier in the day and closes above nearby R. The second setup has its low forming a double bottom with a candle from the prior day in an ongoing uptrend.
Fig 3.3 - 1H chart of S&P Futures - Bullish Engulfing that forms at the lower boundary of a range. The low forms a Double Bottom with a candle from prior day. Setups occurring at strong support such as Horizontal S or a prior pivot add conviction. Setups occurring without any nearby support should be filtered out.
CHART EXAMPLES
Positional
Fig 1.4 - Daily chart of CFDs on Silver (US$/OZ)
Bullish Engulfing on 18th Feb and 30th Apr, 2026 very close to Horizontal S.
Fig 1.5 - Daily chart of Mini DJIA Futures on CBOT
Big Green Bullish Engulfing on 11th June, 2026 after the prior candle broke down to find support in a very significant narrow congestion zone. A strong rally results.
Fig 1.6 - Daily chart of Bitcoin/USD CFDs
Bullish Engulfing on 20th and 30th April 2026 that closes above the upper boundary of a wide range marking a 2nd and 3rd breakout from the range, after a mild decline.
In all the above examples, the Bullish Engulfing candle has either formed at strong support or represents a breakout from a range or pattern. Looking for such confluence is integral to a decision to take a trade with conviction instead of the setup forming in a vaccuum.
Bullish Setup 2 - Hammer at Support
This setup is a single candlestick reversal pattern that forms after a noticeable decline. It has a small body near the high of the candlestick with a long lower shadow, resembling a hammer.
To be considered tradable within our strategy, the setup must meet specific criteria:
Key Elements for Trade Selection : A good trade should preferably meet most of the elements, based on the overall context of the charting landscape - if you are not sure, do not chase the trade.
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The lower wick of the candle should be at least twice the size of the real body of the hammer. The longer the lower wick, the stronger the setup.
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Setup forming at prior support level adds to conviction. A confluence of supports is ideal. For example, a setup at the intersection of strong horizontal and gap support has higher odds of success than one at a simple double bottom (2B). Avoid trades if the setup forms at no or weak support.
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A Hammer forming within a narrow range or narrow consolidation without any preceding decline does not qualify as a setup. Avoid.
Chart Examples: Intraday
Fig 2.1 - 1H chart of CFDs on WTI Crude
A Hammer at strong gap support in the afternoon session on 5th Mar 2026 that eventually breaks out of a Reverse H&S pattern and starts a massive rally.
Fig 2.2 - 1H chart of Mini DJIA Index Futures on CME
Multiple instances of strong Hammers at Horizontal S that result in an immediate strong upside on the very next candle.
Fig 2.3 - 1H chart of Nikkei index
Hammer at Double Bottom on 2nd Jun 2026 results in a strong rally. Followed by 2 instances of Hammers at Horiontal support on 4th Jun, 2026.
Chart Examples: Positional
Fig 2.4 - Daily chart of Micro Silver Futures on COMEX
Hammer at Double Bottom on 23rd Mar 2026 results in a mild rally over the next 4 weeks. Notice the false breakdown below the previous bottom, a sell failure, that makes the signal more convincing.
Fig 2.5 - Daily chart of CFDs on Gold
Hammer at strong Horizontal S on 28th May 2026 tries to rally but fails. After moving sideways for 5 days, it breaches the support to start a strong downward move. An example of a signal failure that results in a strong move in the opposite direction.
Fig 2.6 - Daily chart of Mini DJIA Futures on CBOT
In the first instance, a strong Hammer occurs on 17th Oct 2025 just above the prior pivot low, part of a potential 1-2-3 bottom. In the second instance, a very strong hammer (resembling a Dragonfly Doji) forms on 7th Nov 2025 after breaking below the support of the upper boundary of the range, signalling a sell failure.
Bullish Setup 3 - Range / Pattern breakout
This setup is characterized by a single candlestick with a relatively large green body that overcomes strong overhead resistance and breaks out of a range or pattern. The breakout indicates strong bullish momentum and the potential for further price expansion.
To be considered tradable within our strategy, the setup must meet specific criteria:
Key Elements for Trade Selection : A good trade should preferably meet most of the elements, based on the overall context of the charting landscape - if you are not sure, do not chase the trade.
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The close should preferably be above the nearby resistance. However, it is acceptable if the close is just below the highest high of the nearby candles but above the real bodies, provided the signal candle is strong (relatively taller than average) and closes near its high. If you are not sure, avoid.
A close above the opening gap down, such that the gap gets closed, is a valid signal to go long as the strong resistance offered by the gap is overcome.
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Avoid trades if the big green candle is the first breakout close above a prominent range or pattern formed over several days like a big Reverse Head & Shoulders or a wide range with multiple pivot points at or near the same horizontal level. Such conspicuous breakouts attract attention of the retail who jump in at the first opportunity. Subsequently, price often retraces, trapping buyers.
It's safer to wait for a retracement to resistance (or below) and enter on a second breakout.
Proceed with the trade if the breakout is not very prominent.
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Avoid if the signal candle closes within a prior narrow congestion zone as it might offer an overhead layer of resistance, preventing further expansion.
However, go ahead with the trade if there is sufficient room to expand when the close is within a wide range. Some judgment is required to take a call.
Chart Examples: Intraday
Fig 3.1 - 1H chart of CFDs on WTI Crude
A strong breakout from a small narrow range in the afternoon session on 29th Apr, 2026 goes on to build a strong rally. In the second instance on 4th May, 2026, 2 range breakouts result in mild rallies, one each in the afternoon and evening session. The secong breakout occurs after a retracement and also forms a Bullish Engulfing.
Fig 3.2 - 1H chart of Micro SIlver Futures on COMEX
Multiple instances of range/ pattern breakouts. The first 2 result in strong breakouts, the third one is outside the trading window and the fourth eventually fails.
Fig 3.3 - 1H chart of Mini S&P Futures on CME
In the first instance on 31st Mar, 2026, the first breakout from a prominent Double Bottom fails, however, the price bounces back for a second breakout 2 candles later. Usually, a first breakout from a promiment pattern or range is prone to failure. The second breakout, if it happens, is more reliable. In the second instance on 2nd Apr, 2026, the breakout happens from a smaller Double Bottom pattern and runs away on the next candle.
Chart Examples: Positional
Fig 3.4 - Daily chart of Micro Gold Futures on COMEX
Multiple imstances of range an dpattern breakouts in the strong rally that started with a breakout above a prominent range on 2nd September, 2025. The strong uptrend ensured that all breakouts were successful, not something that you would expect in sideways markets.
Fig 3.5 - Daily chart of Micro E-Mini DJIA Futures on CBOT
2 instances of breakout from a narrow congestion zone, ~3.5 months apart. The first results in a failure, starting a significant downtrend while the second succeeds. The first breakout from a prominent range or pattern often fails while the second is more reliable.
Fig 3.6 - Daily chart of CFDs on Bitcoin (BTC/USD)
Several instances of breakout resulting in different outcomes. In the first instance on 9th Jul, 2025, the first breakout from a large Double Bottom is successful in first attempt. In the second instance on 14th Aug, 2026, a failed breakout above a Double Top (no signal) results in a big red Bearish Engulfing and leads to a sugnificant downtrend. The third instance depicts a breakout from a small Reverse H&S that succeeds initially but eventually breaks down after several failed attempts to go up.
Bullish Setup 4 - Bullish Harami
This signal is a combination of two candlesticks, of which the first is a big red candle and the second is a narrow range (NR) green candle, a.k.a Harami candle, that closes within the real body of the prior big red candle, closing higher. While the first candle signifies strong bearish momentum, the second candle fails to follow through, suggesting a possible exhaustion of bearish momentum and hence, a reversal.
To be considered tradable within our strategy, the setup must meet specific criteria:
Key Elements for Trade Selection : A good trade should preferably meet most of the elements, based on the overall context of the charting landscape - if you are not sure, do not chase the trade.
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The red candle’s real body should be longer than average and close should be near its low, signifying strong bearish momentum.
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The signal candle should have a narrow range and should preferably close near its high, within the lower half of the real body of the prior long red candle.
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The signal candle’s low should not breach the low of the red candle, preferably, or the breach should be small. If the former travels significantly lower before pulling back, it is no longer a Bullish Harami but probably a Hammer. It is important to distinguish between the two as both have different payoffs.
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The big red and the harami candle either form at prior support or after a breakdown by the prior big red candle from a range or pattern. The latter is a particularly stronger setup because of the potential sell failure effect. Avoid signals that form in a range or vacuum without any nearby support.
Chart Examples: Intraday
Fig 4.1 - 1H chart of Micro Gold Futures on COMEX
Bullish Harami forms in the evening session after a Big Red candle that breaks down from a H&S Top and finds support from a series of Big Green candles from 2 days back. The setup indicates the waning of the downside momentum and a strong likelihood of the price rallying. As expected, an upward move follows that retests the neckline above.
Fig 4.2 -1H chart of CFDs on WTI Crude
Bullish Harami forms in the evening session at the confluence of a Gap and Horizontal S, after a Big Red candle. What follows is a Big Green that reverses the entire downward move. The price continues to move northward.
Fig 4.3 -1H chart of Nikkei Index
Bullish Harami forms in the late evening session after a Big Red breakdown from a range that finds support at a prior narrow support zone. The confluence of a sell failure and strong support reverses the price back into the range.
Chart Examples: Positional
Fig 4.4 - Daily chart of CFDs on Silver (USD/ OZ)
Bullish Harami forms right at the prior congestion support when the price retraces after a breakout in an uptrend. Meets almost all key elements for trade selection.
Fig 4.5 - Daily chart of Nikkei Index
2 instances of Bullish Harami that form 8 days apart in an ongoing uptrend. Both form when the price retraces to test support after a prior breakout from a range.
Fig 4.6 - Daily chart of CFDs on Bitcoin (BTC/USD)
2 instances of Bullish Harami that form at strong support of a long and narrow congestion zone from 2 months back. In the first instance, the price comes back to form a small Double Bottom thus incorporating the setup as part of a pattern breakout. In the second instance, the setup is preceded by 2 narrow range candles that form after a Big Red candle that breaks down into the congestion zone.This is a variation of the conventional setup but the psychology remains unaltered.
Bullish Setup 5 - Piercing Pattern
Piercing Pattern is comprised of a single candlestick, that often appears after a significant bearish trend. It opens below the previous candle’s low but closes within the real body of the previous candle, preferably above its midpoint. However, for the purpose of this setup, a candle opening with a large gap down but reversing to close strong even within the gap is considered as a valid setup.The setup often signals a strong reversal of the ongoing bearish trend to bullish.
The setup is valid only for positional trading as a gap down rarely occurs in the course of intraday trading.
To be considered tradable within our strategy, the setup must meet specific criteria:
Key Elements for Trade Selection : A good trade should preferably meet most of the elements, based on the overall context of the charting landscape - if you are not sure, do not chase the trade.
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The present trend should be preferably down or sideways. Typically, the signal often marks a false breakdown from a range or a pattern on the downside followed by a trap reversal.
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A strong Piercing Pattern setup can form in either of the two ways described below, with the latter being stronger, as it is a sell failure
Open with a significant gap down (avoid small gap downs), with the low testing prior support without breaching it . Strong reversal thereafter to fill the opening gap and close near its high, in the real body of the previous red candle.
Open with a significant gap down below support and subsequent reversal to close above support. This adds conviction to the setup as it traps the bears, strongly implying a move in the opposite direction.
Sometimes, when the opening gap is abnormally large and below strong support (usually because of an adverse development overnight), the piercing pattern may not be able to fill the gap completely, but still close strong inside the gap, near its high. This is also an acceptable bear trap signal that has strong implications of an aggressive upward move.
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There is enough room to expand to meet the price target. Avoid when the close is in the middle of strong congestion or significant overhead resistance
Chart Examples: Positional
Fig 5.1 - Daily chart of CFDs on WTI Crude
Piercing Pattern forms on 5th May, 2025at Double Bottom support, without breaching the prior pivot low. Price opens with a large gap down on a Monday but reverses to close strong within the gap even though the gap is not closed. Signals a strong reversal of the ongoing bearish trend to bullish.
Fig 5.2 - Daily chart of Micro E-Mini DJIA Futures on CBOT
Multiple instances of a Piercing Pattern that forms after a weekend. While the first 2 fail, the third one is successful. Does not have a very good Win Ratio on indices.
Bullish Setup 6 - Outside Strong Green
Outside Strong Green is mostly a one candle continuation pattern in an uptrend or near a breakout that operates like a ‘trap’ for the bears and shakes out the bulls. It is a candle with a long lower wick that engulfs the real body of the prior green candle or a small bullish pattern giving an impression of a bearish reversal, before reversing on the same candle and closing near its high, thus confirming the uptrend/ breakout.
It occurs in a strong uptrend and provides an opportunity to enter a bullish trend with a strong momentum. It also occurs near the resistance zone before, during or after a breakout from a range or pattern, providing an opportunity to enter the move with conviction. In fact, a distinctive feature of this signal is that it frequently coincides with the breakout from a bullish pattern.
It is a ‘sell failure’ pattern that traps the bears and shakes out the bulls, hence powerful.
To be considered tradable within our strategy, the setup must meet specific criteria:
Key Elements for Trade Selection : A good trade should preferably meet most of the elements, based on the overall context of the charting landscape - if you are not sure, do not chase the trade.
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The signal appears only in specific situations as below:
a) When the price is already in a strong uptrend
b) Impending or during breakout from a range or pattern
c) Immediately after the breakdown (1 or 2 candles)
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The lower wick should be long enough to engulf the real body of the previous green candle. At times, when the previous green candle has a relatively long real body, it is acceptable if the wick is not long enough to engulf the entire body as long as the wick covers a distance below the halfway mark.
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The real body of the setup candle may be green or red, what matters is a long lower wick that indicates strength (like a hammer).
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Setup candle range should be longer than average. Be careful not to trade on a small candle as it might not have the desired impact.
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For the signal occurring in an uptrend, the trend should be relatively young. Be careful when the trend seems to have run its course or matured.
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In case of a pattern or range breakout, look for the low of the setup candle to breach the lower boundary S before reversing to generate a sell failure. This makes the setup very convincing. However, this is not mandatory.
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For impending breakout, the close of the setup candle should be near its high and right below the overhead R. This is the only instance in our system when we take a long trade even when the price closes below resistance.
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There is enough room to expand to meet the price target. Avoid when there is strong overhead resistance except for an impending breakout as above.
Chart Examples: Intraday
Fig 6.1 - 1H chart of Micro Silver Futures on COMEX
Outside Strong Green that occurs after a breakout from a smaller range and right at the breakout from a larger range.The setup depicts reversal on the same candle after forming a Bearish Engulfing earlier, a trap signal that shakes off weak bulls.
Fig 6.2 - 1H chart of CFDs on WTI Crude
Outside Strong Green in a strong uptrend that started with a range breakout the prior day. Provides an opportunity to enter a strong uptrend with conviction.The uotrend resumes after the setup forms.
Fig 6.3 - 1H chart of Micro S&P Futures on CME
Outside Strong Green forms before a small range breakout in an ongoing uptrend after a massive breakout the prior day. Price expands massively on the next candle.
Chart Examples: Positional
Fig 6.4 - Daily chart of Micro S&P Futures on CME
Outside Strong Green before Reverse H&S breakout. Breakout on the next Big Green candle that starts a very strong uptrend that carries the price to an All Time High.
Fig 6.5 - Daily chart of Nikkei Index
2 instances of an Outside Strong Green at breakout from a small range within a wider range. The setup candle in both cases is of average range but does lead to meaningful rallies. This is an example of the versatility of this setup working in multiple scenarios, even in a sideways market, provided the range is wide enough.
3.3B Mainstream Trading Setups - Bearish
Bearish Setup 1 - Bearish Engulfing
Bearish Engulfing is a two-candlestick reversal pattern that forms after a noticeable rise.
To be considered tradable within our strategy, the setup must meet specific criteria:
Key Elements for Trade Selection : A good trade should preferably meet most of the elements, based on the overall context of the charting landscape - if you are not sure, do not chase the trade.
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The bigger the size of the real body engulfing the real body of the prior candle, the stronger the setup.
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The more number of prior candles engulfed, the stronger the setup.
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Setup forming at prior resistance level adds to conviction. A confluence of resistances is ideal. For example, a setup at the intersection of strong horizontal and gap resistance has higher odds of success than one at a simple double top (2T).
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A setup that forms as a part of a small consolidation (a range or a bearish chart pattern) after a substantial rise adds conviction. It signals that the consolidation may be over and the price ready to move southward. Avoid trades if the setup forms at no or weak resistance without any consolidation.
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A Bearish Engulfing forming within a narrow range or narrow consolidation without any preceding rise does not qualify as a setup. Avoid.
Chart Examples: Intraday
Fig 7.1 - 1H chart of Micro Silver Futures on COMEX
Multiple Bearish Engulfing setups that occur at Pivot or Horizontal R. The second instance does not happen at R but happens after a range breakout. A bearish setup that occurs soon after a breakout represents a buy failure, a strong signal.
Fig 7.2 - 1H chart of Micro DJIA Futures on CBOT
Multiple Bearish Engulfing setups that occur at R on 3 successive days. The third also represents a buy failure, a very strong signal.
Fig 7.3 - 1H chart of Nikkei Index
Bearish Engulfing on 14th May, 2026 at a prior Pivot R. Another setup occurs the next morning that is particularly strong, being a buy failure and a range breakdown on the same candle, a rare confluence.
Chart Examples: Positional
Fig 7.4 - Daily chart of CFDs on Gold
Bearish Engulfing on various days at the upper boundary of a narrow range, that acts as Horizontal R. All setups form after a decent rise within the range taking the price to the Horizontal R. Any candles that form in the middle or lower half of the range are invalid.
Fig 7.5 - Daily chart of CFDs on Gold
Bearish Engulfing on 21st Oct, 2025 that is also a Double Top breakdown. Another similar setup occurs on 29th Dec, 2025, signifying a range breakout failure, however, it fails. The price dips back into the range, consolidates for 3 days and breaks out of the range for a second time launching into the last leg of the great gold rally.
Fig 7.6 - Daily chart of Micro Bitcoin Futures on CME
Bearish Engulfing on 14th Aug and 7th Oct, 2025 at Pivot and Horizontal R respectively. On 11th Nov, 2025 and 15th Jan 2026, the setup signifies a range breakout buy failure, a very powerful sugnal that starts powerful declines in both instances.
Bearish Setup 2 - Reverse Hammer
This setup is a single candlestick reversal pattern that forms after a noticeable rise. It has a small body near the low of the candlestick with a long upper shadow, resembling a hammer in reverse.
To be considered tradable within our strategy, the setup must meet specific criteria:
Key Elements for Trade Selection : A good trade should preferably meet most of the elements, based on the overall context of the charting landscape - if you are not sure, do not chase the trade.
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The upper wick of the candle should be at least twice the size of the real body of the hammer. The longer the upper wick, the stronger the setup.
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Setup forming at prior resistance level adds to conviction. A confluence of resistances is ideal. For example, a setup at the intersection of strong horizontal and gap resistance has higher odds of success than one at a simple double top (2T). Avoid trades if the setup forms at no or weak resistance.
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A Reverse Hammer forming within a narrow range or narrow consolidation without any preceding rise does not qualify as a setup. Avoid.
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Setup can also appear in a downtrend after a strong bounce from support on the previous candle/s.
Chart Examples: Intraday
Fig 8.1 - 1H chart of CFDs on WTI Crude
Reverse Hammer on multiple occasions. The first instance is not a valid setups as it occurs within a range close to support without any preceding rise. The second instance is a double Reverse Hammer right at a prior Pivot R close to Horizontal R. The third instance forms at Horizontal R but fails after one candle. The fourth instance forms in a narrow congestion R after a breakout from a small range that fails. Price subsequently forms a 1-2-3 Top pattern and breaks down spectacularly.
Fig 8.2 - 1H chart of Micro DJIA Futures on CBOT
Reverse Hammer that forms on 13th March, 2026 at the upper boundary of a wide range. Price descends all the way to the lower boundary of the range.
Fig 8.3 - 1H chart of Micro S&P Futures on CME
Reverse Hammer that forms on 23rd Feb, 2026 with a long wick that makes a high right at the upper boundary of a wide range. The long upper wick provides the momentum for the price to descend to the lower boundary on the next candle itself.
Chart Examples: Positional
Fig 8.4 - Daily chart of CFDs on WTI Crude
Reverse Hammer forms on 9th Apr, 2026 at prior Pivot R forming a Double Top. The next candle is a Big Red that tests the lower boundary of the Gap S that got created by the massive Gap Up on the 9th of March.
Fig 8.5 - Daily chart of Micro DJIA Futures on CBOT
Multiple instances of Reverse Hammer forming in various situations - buy failure. Horizontal R and in narrow Congestion R. The last instance on 10th Mar, 2026 is a good example of the setup occuring in an established downtrend.
Fig 8.6 - Weekly chart of CFDs on Copper
Note: A weekly chart may also reveal a prominent Bearish setup that might have an impact the following week. Whenever such a setup appears on a weekly chart, you should be alive to the possibility of a steep downward movement in the following week, however, you need to wait for a fresh bearish setup on the daily chart.
In the first instance, the weekly candle from 24th to 28th Mar, 2025 forms a prominent Reverse Hammer at a prior Pivot R that has a telling impact forming a Big Red on the next candle. We will analyze the event more closely in the daily chart in the following figure.
Fig 8.7 - Daily chart of CFDs on Copper
Refer the Reverse Hammer that forms on the weekly chart above. On the lower timeframe, the daily chart reveals a strong Reverse Hammer on the 26th March, 2025 following a breakout above prior Pivot R, a buy failure. The setup confirming on the weekly chart adds high conviction to the positional trade. The decline gathers emphatic momentum once the range gets broken 5 days later.
Bearish Setup 3 - Range / Pattern breakdown
This setup is characterized by a single candlestick with a relatively large red body that breaches strong underlying support and breaks down from a range or pattern. The breakdown indicates strong bearish momentum and the potential for further price expansion.
To be considered tradable within our strategy, the setup must meet specific criteria:
Key Elements for Trade Selection : A good trade should preferably meet most of the elements, based on the overall context of the charting landscape - if you are not sure, do not chase the trade.
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The close should preferably be below the nearby support. However, it is acceptable if the close is just above the lowest low of the nearby candles but below the real bodies, provided the signal candle is strong (relatively taller than average) and closes near its low. If you are not sure, avoid.
A close below the opening gap up, such that the gap gets closed, is a valid signal to go short as the strong support offered by the gap is overcome.
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Avoid trades if the big red candle is the first breakdown close below a prominent range or pattern formed over several days like a big Head & Shoulders or a wide range with multiple pivot points at or near the same horizontal level. Such conspicuous breakdowns attract attention of the retail who jump in at the first opportunity. Subsequently, price often retraces, trapping buyers.
It's safer to wait for a retracement to support (or above) and enter on a second breakout.
Proceed with the trade if the breakdown is not very prominent.
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Avoid if the signal candle closes within a prior narrow congestion zone as it might offer an overhead layer of support, preventing further expansion.
However, go ahead with the trade if there is sufficient room to expand when the close is within a wide range. Some judgment is required to take a call.
Chart Examples: Intraday
Fig 9.1- Intraday chart of Micro Silver Futures on COMEX
Descening Triangle breakdown in a larger downtrend on 20th Mar, 2026.
Fig 9.2- Intraday chart of Micro S&P Futures on CME
Two instances of pattern breakdown on 7th and 12th May, 2026. In the first instance two successive sell signals add conviction to the trade. In the second instance, the breakdown coincides with the failure of the strong buy signal on the previous candle making it a strong sell because of the’trap’ effect.
Fig 9.3- Intraday chart of CFDs on WTI Crude
A 1-2-3 pattern breakdown closes in strong Gap S, not a valid setup. Price fills the gap the next day and consolidates at the lower boundary of the massive Gap S zone through the morning and afternoon. A confluence develops with Horizontal S coinciding with the lower boundary of the Gap S. Price breaks down below S in the afternoon but it proves to false. A second breakdown in the evening declines rapidly. A first breakdown from a prominent S or pattern often fails. The second breakdown is more reliable.
Chart Examples: Positional
Fig 9.4 - Daily chart of Micro Gold Futures on COMEX
1-2-3 Top breakdown on 18th Mar, 2026 and range breakdown on 5-Jun 2026
Fig 9.5 - Daily chart of Micro DJIA Futures on CBOT
Range breakdown from a long wide and prominent range fails on 3 successive days before finally breaking down to start a downtrend on 5th Mar, 2026. A first breakdown from a prominent range often fails. In this case, even the 2nd and 3rd breakdown failed because of the strong support offered by the narrow congestion zone below. It was the 4th breakdown that eventually worked.
Fig 9.6 - Daily chart of Nikkei Index
Double Top breakdown on 15th May, 2026 that finds support at a narrow congestion zone below and retraces to continue the prevailing trend. A subsequent breakdown on 15th May fails and goes northward in a sharp upmove.
Bearish Setup 4 - Bearish Harami
This signal is a combination of two candlesticks, of which the first is a big green candle and the second is a narrow range (NR) red candle, a.k.a Harami candle, that closes within the real body of the prior big green candle, closing lower. While the first candle signifies strong bullish momentum, the second candle fails to follow through, suggesting a possible exhaustion of bullish momentum and hence, a reversal.
To be considered tradable within our strategy, the setup must meet specific criteria:
Key Elements for Trade Selection : A good trade should preferably meet most of the elements, based on the overall context of the charting landscape - if you are not sure, do not chase the trade.
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The green candle’s real body should be longer than average and close should be near its high, signifying strong bullish momentum.
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The signal candle should have a narrow range and should preferably close near its low, within the upper half of the real body of the prior long green candle.
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The signal candle’s high should not breach the high of the prior green candle, preferably, or the breach should be small. If the former travels significantly higher before pulling back, it is no longer a Bearish Harami but probably a Reverse Hammer. It is important to distinguish between the two as both have different payoffs.
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The big green and the harami candle either form at prior resistance or after a breakout by the prior big green candle from a range or pattern. The latter is a particularly stronger setup because of the potential buy failure effect. Avoid signals that form in a range or vacuum without any nearby resistance.
Chart Examples: Intraday
Fig 10.1 - Intraday chart of CFDs on WTI Crude
A Bearish harami forms after a Big Green breakout from a 1-2-3 Bottom on 16th Mar 2026. The price declines rapidly developing into a 1-2-3 Top that breaks down with Big Red candles after pausing monetarily at the Pivot S below.
Fig 10.2 - Intraday chart of Micro DJIA Futures on CBOT
Price breaks out with great momentum from a narrow congestion zone on 29th Nov, 2025, however, stalls at the overhead Horizontal R. A Bearish Harami forms right there leading to a price crash that descends with great force breaking the narrow congestion as well as the Horizontal S below.
Fig 10.3 - Intraday chart of Micro Bitcoin Futures on CME
Price forms a Bearish Harami in the evening after breaking out of Horizontal R for a second time during the day. The setup occurs right at the confluence of Horizontal and Pivot R, signifying a buy failure. Hence, a strong signal with high conviction. The price enters a big decline on the next candle.
Chart Examples: Positional
Fig 10.4 - Daily chart of Nikkei Index
Two instances of Bearish Harami, 7th and 21st Oct, 2025. In both instances, a Bearish Harami forms after a powerful breakout from a range. In the first instance, the price retraces to retest the high before crasing and in the second, the setup fails to work beyond one candle.
Fig 10.5 - Daily chart of WTI Crude Spot
Bearish Harami @ Horizontal R after Big Green on 1st and 13th Aug, 2025.
Fig 10.6 - Daily chart of CFDs on Silver
Bearish Harami on 28th Mar, 2025 after a minor breach of prior Pivot R aka buy failure. The setup develops into a Double Top breakdown that crashes more than 10%, all the way to the bottom boundary of the preceding wide range.
Bearish Setup 5 - Dark Cloud Cover
Dark Cloud Cover is comprised of a single candlestick, that often appears after a significant bullish trend. It opens above the previous candle’s high but closes within the real body of the previous candle, preferably below its midpoint. However, for the purpose of this setup, a candle opening with a large gap up but reversing to close weak even within the gap is considered as a valid setup.The setup often signals a strong reversal of the ongoing bullish trend to bearish.
The setup is valid only for positional trading as a gap up rarely occurs in the course of intraday trading.
To be considered tradable within our strategy, the setup must meet specific criteria:
Key Elements for Trade Selection : A good trade should preferably meet most of the elements, based on the overall context of the charting landscape - if you are not sure, do not chase the trade.
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The present trend should be preferably up or sideways. Typically, the signal often marks a false breakout from a range or a pattern on the upside followed by a trap reversal.
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A strong Dark Cloud Cover setup can form in either of the two ways described below, with the latter being stronger, as it is a sell failure
a) Open with a significant gap up (avoid small gap ups), with the high testing prior resistance without breaching it. Strong reversal thereafter to fill the opening gap and close near its low, in the real body of the previous green candle.
b) Open with a significant gap up above resistance and subsequent reversal to close below resistance. This adds conviction to the setup as it traps the bulls, strongly implying a move in the opposite direction.
Sometimes, when the opening gap is abnormally large and above strong resistance (usually because of a favorable development overnight), the dark cloud cover may not be able to fill the gap completely, but still close weak inside the gap, near its low. This is also an acceptable bull trap signal that has strong implications of an aggressive downward move.
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There is enough room to expand to meet the price target. Avoid when the close is in the middle of strong congestion or significant underlying support.
Chart Examples: Positional
Fig 11.1 - Daily chart of CFDs on WTI Crude
Dark Cloud Cover forms on 5th Jul, 2024 at Horizontal R. The setup develops into a Double Top breaking down on the next candle.
Fig 11.2 - Daily chart of Micro DJIA Futures on CBOT
Price gaps up on Monday morning, 28th Jul, 2025 right at the Horizontal R above, breaches it to trigger a buy and reverses to form a Dark Cloud Cover. The setup develops into a Double Top breaking down on the next candle. High conviction trade as there are 2 bearish setups on successive candles along with a buy failure.
Fig 11.3 - Daily chart of Micro S&P Futures on CME
The candle on 31st Jul, 2025 generates 2 bearish setups - a Dark Cloud Cover and a Double Top breakdown - a rare but powerful occurrence.
Bearish Setup 6 - Outside Strong Red
Outside Strong Red is mostly a one candle continuation pattern in a downtrend or during a breakdown that operates like a ‘trap’ for the bulls and shakes out the bears. It is a candle with a long upper wick that engulfs the real body of the prior red candle or a small bearish pattern giving an impression of a bullish reversal, before reversing on the same candle and closing near its low, thus confirming the downtrend/ breakdown.
It occurs in a strong downtrend and provides an opportunity to enter a bearish trend with a strong momentum. It also occurs near the support zone before, during or after a breakdown from a range or pattern, providing an opportunity to enter the move with conviction. In fact, a distinctive feature of this signal is that it frequently coincides with the breakdown from a bearish pattern.
It is a ‘buy failure’ pattern that traps the bulls and shakes out the bears, hence powerful.
To be considered tradable within our strategy, the setup must meet specific criteria:
Key Elements for Trade Selection: A good trade should preferably meet most of the elements, based on the overall context of the charting landscape - if you are not sure, do not chase the trade.
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The signal appears only in specific situations as below:
a) When the price is already in a strong downtrend
b) Impending or during breakdown from a range or pattern
c) Immediately after the breakdown (1 or 2 candles)
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The upper wick should be long enough to engulf the real body of the previous red candle. At times, when the previous red candle has a relatively long real body, it is acceptable if the wick is not long enough to engulf the entire body as long as the wick covers a distance above the halfway mark.
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The real body of the setup candle may be green or red, what matters is a long upper wick that indicates weakness (like a reverse hammer).
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Setup candle range should be longer than average. Be careful not to trade on a small candle as it might not have the desired impact.
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For the signal occurring in a downtrend, the trend should be relatively young. Be careful when the downtrend seems to have run its course or matured.
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In case of a pattern or range breakdown, look for the high of the setup candle to breach the upper boundary R before reversing to generate a buy failure. This makes the setup very convincing. However, this is not mandatory.
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For impending breakdown, the close of the setup candle should be near its low and right above the underlying S. This is the only instance in our system when we take a short trade even when the price closes above support.
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There is enough room to expand to meet the price target. Avoid when there is strong underlying support except for an impending breakdown as above .
Chart Examples: Intraday
Fig 12.1 - 1H chart of CFDs on WTI Crude
Outside Strong Red on 7th May, 2026 after a range breakdown on the previous candle. Two bearish setups on successive candles makes it a high conviction trade.
Fig 12.2 - 1H chart of CFDs on WTI Crude
Two instances of Outside Strong Green on 30th Apr, 2026. While the first one occurs fairly above Horizontal S (not a valid setup), the second candle closes right above S, indicating an impending breakdown.
Fig 12.3 - 1H chart of Nikkei Index
Outside Strong Green on 2 successive candles on 26-Jun 2026 that meet different conditions. While the first one gives a false breakout of a narrow range before reversing (aka buy failure) and closing right above the neckline of a H&S pattern, indicating an impending breakdown. The next candle is also an Outside Strong Green that breaks down from the pattern.
Fig 12.4 - 1H chart of Micro DJIA Futures on CBOT
Outside Strong Green on 7th Aug, 2025 that breaches overhead resistance before reversing and breaking down below the Pivot S below. The setup coincides with a Double Top Breakdown on the same candle, a very potent combination. Additionally, the pattern breakdown itself sugnifies a wide range break out failure. With so many confluences working together, it is no surprise that the price crashes below all the nearby Pivot Supports, forming a Big Red on the next candle.
Chart Examples: Positional
Fig 12.5 - Daily chart of Micro DJIA Futures on CBOT
Outside Strong Red on 16th Dec, 2024 in n established downtrend after a small Double Top breakdown 5 days back. Provides an opportunity to enter the downtrend, however, be careful, when the trend becomes mature or approaches a support.
Fig 12.6 - Daily chart of Nikkei Index
Outside Strong Green on 21st Feb, 2025 that closes near its low right above the lower boundary of a massive range, indicating an impending breakdown. Note that the upper wick does not engulf the real body of the prior candle, however, does travel above the halfway mark meeting the entry condition.