A trendline break followed by a test of the extreme is a major trend reversal and its very useful to be able to recognize it in real time. This allows you to exit your positions precisely and perhaps ride the reversal as well.
There are a few things to look for in a major reversal. The first is that the trendline break needs to be a strong break. This means the break is for several bars and several points. In general you want half the move on each side of the trendline. A slight break such as the dip of b11 below the trendline from b1 to b6 may not necessarily break the trend.
The second thing to look for is a failure to move much beyond the extreme before the trend break (b16 high). When you see a strong push at this point, its a great place to exit on strength. If the price is able to move many bars and many points beyond it, the trend should be expected to continue until another trendline break.
The last item to look for is a reversal signal just beyond the prior extreme. Today we got a 2 bar reversal at b40,41. A reversal bar or a weak bar followed by a small inside trend bar are also perfectly acceptable. If there is no reversal signal, its best to wait for a second entry or let the reversal proceed and enter on the first pullback.
Often the first pullback after a reversal is very shallow (b46), but will run for many points. This is usually a swingable trade to at least the swing point of the trendline break (b27 low).
I've seen in the last days you've started using 3 contracts in some entries. For example, in today's, 06/01's and 05/31's 1PB.
ReplyDeleteAnd also in 06/02's fBOs.
Any reason but a high Risk - Reward Ratio ofr this kind of entries?
You should see them as 3 exits and adjust to your personal trading size, rather than simply 3 contracts. For example, traders who trade 10 contracts may exit 10 contracts at the early exit, and 5 each at the next two exits.
ReplyDeleteThe reason to have three exits is a belief that there could be a substantial pullback after the second exit which would be followed by another move that exceeds the prior swing point.