Monthly Archives: July 2009

The Confusion of Trends on Different Timeframes

Here’s another great question from a YTC newsletter reader…

Question:

Lance,

I have another question. Its to do with “the trend”. We are told, “the trend is our friend”. We are also told, “the trend is our friend until the end”, and we are told, “trade the trend until it bends”.

But the weekly and daily charts of a currency pair can show down-trending. Yet the hourly and 30 minute charts of the same currencies can show up-trending. So what does one do? Wait for the smaller time frames to down-trend like the weekly and daily, or seize the opportunity and trade the up-trend on the hourly and half hourly charts, which oddly enough, means trading against the trend of the higher time frames.

Thanks,

Brian.

 

Answer:

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Trapped Traders – Part 2

Trapped traders are a simple concept you may wish to incorporate into your trading strategy, due to its potential to offer higher reliability trade setups.

 Part 1 of this series introduced the 3-Swing Retrace. If you missed that article, you’ll find a copy at this address: http://yourtradingcoach.com/trading-process-and-strategy/trapped-traders-part-1/

 In this article, we’ll look at setups which are often referred to as Springs and Upthrusts.

 As with the 3-Swing Retrace, Springs and Upthrusts are price action based setups in which traders suddenly find themselves trapped in an undesirable situation, either:

  1. Stuck in a losing position, desperate to get out; or
  2. Stopped out of a position that then moves back in their direction, leaving them desperate to get back in.

 

In both cases the price action has placed traders in a position where their normal human emotional response will compel them to make a trade. We can then increase our odds by trading in the same direction as this new surge of order flow.

Let’s start by examining an Upthrust.

An Upthrust is a price breakout through resistance, which is rapidly rejected. Ideally this occurs on the breakout candle, or the very next candle, trapping breakout traders long, and trapping out those bears who had positioned themselves short during the consolidation at resistance. An example might help…

 

 

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How Support and Resistance Areas are Created

Question:

Hi Lance,

In his text on support and resistance, Mike Reed talks about traders hoping the market will return to a level of support or resistance  so they can break even in that trade. So are levels of support and resistance more to do with the behavior of traders than the actual value of the dollar,

Thanks from Brian. 

 

Answer:

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Improving Exits & Win Loss Size Ratio

Question:

Hi Lance,

The exit strategy videos have really been an eye opener for me. Must say it is the best exit strategy tutorial I ever came upon. A big thank you to you.

This single aspect has been what I now identify to be the only problem for my trading. I realise that my win/loss ratio is about 60% success, I realise that my stop loss sizes (which are dictated by price action) are bigger than my targets therefore contributing to my account reducing. Can you please give me an exit plan to solve this?

 

Answer:

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Controlling Greed

From time to time I like to share some of the reader Q&A, as it often contains lessons or information that is important for all of us who aspire to master this trading game.

The following is a great question from one of the YourTradingCoach newsletter readers, Rory:

 

Question:

I have to thank you for providing me more info than what I have found and learned in months.

I am definitely creating a “system” or method of my own that I am becoming more comfortable and consistent with.

However, my problem is walking away after I have achieved my goals for the session.

i.e. I will attain my goal of $1000.00 using my methods fairly quickly but then I think there is more potential so I jump back in and end up losing what I made if not more.

The reason why I do this is because in the past when I have not jumped back in, I see I could have possibly made multiples more after getting out.

I have experienced the same situation when I played blackjack. (I know I just used a gambling example but some would argue there is a bit of strategy to blackjack).

Any thoughts or directions you can give to walk away and be happy with what I get rather than trying to “take a mile when I have made my inch”?

 

Answer:

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Trapped Traders – Part 1

Trapped traders are a simple concept you may wish to incorporate into your trading strategy, due to its potential to offer higher reliability trade setups.

These are price action based setups in which traders suddenly find themselves trapped in an undesirable situation, either:

  1. Stuck in a losing position, desperate to get out; or
  2. Stopped out of a position that then moves back in their direction, leaving them desperate to get back in.

 

The key in both cases is that the price action has placed traders in a position where their normal human emotional response will compel them to make a trade. We can then increase our odds by trading in the same direction as this new surge of order flow.

There are numerous ways this can present itself on a chart. We’ll look at one of my favorites today, and follow up with other trapped trader patterns in future articles.

Today’s pattern is called a 3-swing retrace.

You might also hear it referred to as an ABC correction, or an ABCD correction. It could also be considered in some cases a bull or bear flag.

We’ll start by examining a 3-swing retrace in an uptrend.

 

trapped traders - 3 swing retracement

 

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