Most reversals fail and every pullback is simply a failed reversal. b3, b10,b14 all had a decent chance of reversing the down move but failed. b22 finally succeeded but taking every reversal hoping to catch "the one" is a terrible way to trade. After a couple of failures (b3 and b10), its simpler to assume every reversal attempt would be a failure and trade with the prior trend and stop when the market proves you wrong.
Using this approach, you have flipped your odds from many failures followed by one success to many successes followed by one failure. And if the trend line is obviously broken before a signal sets up (b30) you can choose to not trade in the old direction any more and look for signs of a definitive reversal.
A bear move is definitively reversed once the market has put in 2 higher highs (b29, 51) and two higher lows (b43, b58). At this point there is a good chance that bulls and bears both agree that the tide has turned and enter in the new direction.
A higher low is always better than trying to capture the exact reversal, since you will eventually see a two legged pullback in the new direction. You may have missed b22, but you could get in above b43 for just a few more ticks. Or you could wait for a 2L pb to the ema (b59), which is likely to give a stronger move.
Hi Cad,
ReplyDeleteI presume the early going today was an example of what you call a "hard trend". And I presume the implication is basically sell any pullback (there were 3 one-tick failures going down). Plz correct me if I am wrong...?
Thanks!!
Yes, the AM move has all the characteristics of a hard trend: steep slope, shallow pulbacks and strong with-trend moves.
DeleteI agree it makes sense to have many successes followed by one failure, but in practice I don't think it holds up. In this example,b3, b10 & b14 are all failed reversals, yes? Where is the opportunity to trade on the short side in terms of entry? And what would be our target? Okay, we decided to go short because the market is going down. But we have no sense of when to get out or how much profit to take. Is this correct? My concern is with the trade execution. Let's say we missed b3 and b10 as failed reversal signals (possible short entries) and we start to pay attention at b14. The profit potential from b14 to b20 is IMO not worth the risk because we can see the market rallied strongly in our face. Most likely creating a loss.
ReplyDeleteI would say b5 IB and b11 IOI were the best signal bars of the AM hours and could have brought you at least 4 points each as they did to me - I don't see any way you could loose on those if you were trading price action.
DeleteNeither b3, b10 or b14 are good reversal bars - the first two are outside bars with a lot of overlap and b14 is too small to be a true reversal bar after a sell climax and overlaps a lot with the previous bar too.
On the other hand, b43 was an excellent entry as it was EMA gap bar + valid second entry after bear TL break and reversal to EMA + micro double (tripple in fact) bottom + double bottom with B25 higher low + arguably a wedge with B32 and B37.
Hi Cad,
ReplyDeletewhen did you decide to have the first target at 4 pts instead of 2 pts on b59? Before the entry or later on?
Before the entry. I expected it to try to take out HOD.
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