Trends dont turn around easily

With-trend traders are always at an advantage and the reason is that trends don't turn around easily. Especially strong trends that have a strong first leg. Today there was a channel like move from b6 onwards until an obvious trendline break (b19-b29). The channel like move very likely means there would be a second leg down, which would take out b19 low. This was met at b46. However, buyers of b46 or b47 were disappointed when the trend did not just reverse to bullish. They may have tried again at b61 (3 pushes down) ad then again at b65, b68 and b72. All those attempts failed because trends don't reverse very easily. Most faders are in too early and pay for it. The large gap and the channel like first leg is an indication of strength and without a strong overshoot, the likelihood of reversal is low.

In general, a 1 legged move to and close beyond the ema (b72) is a good sign that the trend may have ended or at least the counter-trend trades are likely to be profitable beyond the one and two point scalps. Until then, every entry is speculative and if you do enter, exit unless the entry takes you beyond the ema without pullbacks.

A 2 legged pullback after breakout is a good indication of a reversal

A trend break followed by a test of the prior extreme is a major reversal. Sometimes the break is so strong that the test is very shallow. For example, b26 broke a trend line and stopped short at the ema and went into barb wire. Often one bar breakouts fail and sell off rapidly but when it gave a 2 legged pullback (b28 and b32 found sellers) and the buyers were able to take out the prior swing high (b40 took out b28 high), a new trend was in effect (2 Higher highs and two higher lows).

So the next 2 legged pullback at b46 found lots of buyers and so did every pullback into the close.

Trade only with trend when bars are tiny

A large gap works like a spike and usually is a spike in pre-market trading. If the open does not produce significant selling, there is a very good chance the price will channel up. A sharp two legged move to the ema may produce a strong trend but a low momentum move with tiny bars may act like a WP and produce a channel type move.

When most bars are small and have one and have one or two tick bodies, the trend is very likely continue in the direction if the gap for the rest of the day. If channel is narrow, every short signal gives an entry mid-range, something that's very likely to fail.

The best way to trade a channel is to buy any bull bar after a failed L2 near the ema or trendline. Usually when the L2 is off an inside bar near the ema, you can often buy the low of the inside bar on limit with a tight stop.

Whipsaw

When the market swings up and down on every bar stopping out every trade, its in whipsaw mode. Whipsaw can be triggered or aggravated by news as was the case today.

Normally whipsaw represents strong conflict but is definitely a trading range (b1-b7). The most likely outcome is a breakout and reversal (b10,11) leading to a trend (b11-b43).

The market is possibly in whipsaw if two long and two short orders have been stopped out (b1 long stopped below b2, b2 short stopped above b3, b3 long stopped below b4, b5 short stopped above b6). At this point, the best course is to stop trading and wait for a breakout and its reversal. Whipsaws rarely breakout and continue in the direction of the breakout (but it does happen occasionally)

A safer entry is the first pullback after a reversal (b16) or if the breakout is towards the ema, a fade of a two legged move to the ema.

Whipsaws early in the morning can have aftershocks in the PM (b68-b74), so caution must be exercised once the trend breaks (b43-48) and forms a trading range.

2 legged pullbacks in a trading range

On a trading range day, there are no A2 setups, but a 2 legged pullback after a possible test and reversal near the extreme of the range can often work like one. For example, After a possible breakout and reversal on b20, there were two failed attempts to sell at b24 and b27. When they failed, it is equivalent to a 2 legged pullback and the price should be expected to continue in the new direction.

The pullback after b62 DB and possible reversal was a bit more clear since b63 was an L1 and b66 was an L2. Similarly b5,7 were two failed attempts to sell and so were b77 and b79.

When the Trading Range is large enough, an attempt to fade the breakout becomes attractive. A good rule of thumb is to take fBO trades when the trading range is at least 4 points wide.

Eliminating your mistakes, one by one

When you lose a trade, you have to ask yourself if you entered correctly and it just went against you or if it was an emotional or careless entry. Traders who can otherwise read price action well will still be unprofitable because they do not have the discipline to enter only on good setups.

Your first task as a trader is to assess your winning percentages over a fixed timeframe, say a week. Is your winning percentage under 50%? In that case, maybe your current trading style is unsuitable to your personality. Are you trading breakouts and you panic when it moves against you? Maybe you are better off buying pullbacks. Are you trading counter-trend all the time? Perhaps a switch to with-trend trading may improve your score. Your first goal is to find a system where you are right at least 50% of the time on most days.

The next task is to assess every losing trade at the end of every day and update a chart as shown above. List your common mistakes and how many times you committed them per day. There are two categories of mistakes. Ones that you commit on most days and ones that you commit rarely except on certain days when you make a lot of them. Some are both.

For example, in the chart above, trading BW/ol is a mistake that is committed almost everyday but also especially on certain price action (Thursday in the example). Buying the wrong signal bar triggered only on two days, but on Wednesday it triggered 3 times. Mistakes that you commit on most days is the most important to fix. Pick the one that has caused you the highest losses and work on it consciously every trading day until you make it not more than twice a week. Then move to the next one.

Mistakes that you commit on specific kinds of days are easier to fix. You just need to recognize the kind of day that triggers an avalanche of mistakes. Are you shorting your way to the top on a Spike and channel day? Once you see the channel stop trading or only take with-channel trades. Put a post-it note on your monitor that warns: "Watch for channel!" if you must. Are you buying every bull breakout in a strong bear? Fade the breakout instead.

A genuine setup that you would take otherwise that just happened to go against you is not a mistake. That's part of trading. But you should keep track of this separately. This information allows you to select setups that are best for you and you should choose only the top 2 in the beginning and add others slowly as your trading improves.

Spike and Channel day

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Good traders know the rules, while great traders also know the exceptions to these rules. One of the exceptions to trading barbwire is entering on shallow pullbacks in a very strong soft trend.

Normally, I prefer deep pullbacks because they provide the best opportunity for a swing entry. However on a Spike and Channel (SC) day, its best to hold as long as you can. When the spike is strong (entry bar to 1st pullback, b4-b7) and the pullback is shallow (b8-10, about 1/3 of the large bar), there is a very good chance of a SC day. The stronger the spike and the shallower the pullback, the higher the chances of a channel running to the end of the day.

If you entered before the spike, it makes perfect sense to take out most of your profits near the top of the spike and optionally keep one runner to the end of the day. If you missed the breakout, you should enter on the first 2 legged pb (b10 or b20)

SC days are often soft trends and give small bars and very tiny pullbacks. Typically pullbacks are only a tick or two below the previous bars. This is one of the few opportunities to buy the low of any bar that would be L2 on limit. Once your are in, you should hold as long as there is no close below the ema. Note that technically almost every pullback is barbwire in a soft trend and you can buy above every failed L2 (b20,b29,b40) if you are not comfortable buying limit on the L2 breakout.