Monthly Archives: July 2012

3 Different Breakout Pullbacks… 3 Different Outcomes

Today we had three different breakout pullbacks with three different outcomes. The following charts show the trading timeframe first (one chart), followed by the lower timeframe detail (three charts, one per trade).

breakout pullback trades

breakout pullback trades

breakout pullback trades

breakout pullback trades

A common question (although often appearing in different forms) is "but how do I know whether they will work or not?"

Answer… I don't know.

But the trades set up in a strongly directional market, in a high probability structural position, and allow for tight risk control and potential profits several times the risk if the prior lows break.

You've got to take these!

Let's look at trade 3 again from a slightly different lower timeframe perspective (tick chart instead of range chart, for those not familiar with my use of the range charts and scalper channel):

breakout pullback trades

If I'm immediately wrong on the trade then the loss is within acceptable limits.

If I'm partially right and price acts to test the prior low but then fails to follow through, then I'll have taken partial profits (approx 1R) and have scratched the remainder (well I would have if achieving a full fill; with partial fill I would have just scratched).

But if I'm right (and don't stuff up the management) then I get a really nice outcome (even with a partial fill).

The market structure and price action combined to offer opportunity that is good from both a win% and win:loss size ratio perspective. You've got to take them every time. You can't know if they'll work or not. Just take them… and manage the outcome.

Happy Trading,

Lance Beggs


Market Manipulation? Or just Human Nature?

Extract from email received at YTC:

Hi Lance,

I know you are not a big fan of manipulation and conspiracy theories…I think you told me that once..;)

Just follow this for fun…it's the current EUR/USD 1hr chart…

market manipulation

Note: The price action off to the left of the image was trending down to this area of accumulation. I've just cut it off to fit the image.)

My thoughts…

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Stop and Reverse

I don't often reverse a position when stopped out. Usually the failure of a trade in one direction does NOT automatically mean that the opposite direction offers good opportunity.

Most often when they do occur it's because I'm attempting a counter-trend trade and find myself caught in a trap. The stop and reverse allows me to minimise damage and possibly even profit on return to the with-trend direction.

The opposite though, is rare. Reversing a with-trend trade into a counter-trend trade does not happen very often. And when it does, my expectation is NEVER for a complete trend reversal. Rather I'm looking to profit off a small reversion to the mean. And most often this will be done with a reduced position size.

Here's one example of the rarer counter-trend reversals…

The trend was tentatively changed to downwards at A, with the change confirmed on continuation down to B. B's break of C was weak though, extending only two ticks, so entry on the first pullback to D was avoided in preference for a second chance entry on the failure of bar E. Entry was sought intra-candle on the lower timeframe in expectation of a continuation of the downtrend. Part one would target just inside the prior low at B with part two running to the 86.80 region.

Standard YTC Price Action Trader stuff, but on a lower timeframe.

stop and reverse

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How I Maintain Focus

EMAIL QUESTION:

My question is, "how does one stay focused while watching charts waiting for trade setups?"

Lance, my mind wanders while staring at charts waiting for setups. If I could take to the bank the number of trades I missed while NOT paying attention to the charts, I would be making a healthy income.

I've missed many trades wandering off. We all hear often about trader focus; but how does one achieve this??

REPLY:

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Limit Orders at Range Boundary

EMAIL QUESTION:

Do you ever use a limit order to trigger into a trade? I've been trying to use limit orders when the market is in a trading range, selling at the top, buying at the bottom. If this is a fools game could you please set me straight with an explanation of why this won't work in the long run?

Limit orders are very seductive because I can set my stops very tight and have a good risk/reward trade, but quite frankly my results so far leave a lot to be desired.

Any help would be greatly appreciated.

REPLY:

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S/R is a Decision Area, not an Impenetrable Barrier!

It can help to think of Support or Resistance (S/R) simply as a decision area.

Too many traders seem to expect their S/R levels to form an impenetrable barrier guaranteed to hold and reverse price movement. Doing so will lead to much frustration and unnecessary losses.

The following image is an extract from email in which a trader is starting to look at S/R in the right way and examining the way price moves as it approaches the level. There are several ways I analyse price movement. The method he's discussing here is a subset of what I refer to as momentum analysis.

momentum analysis on approach to sr

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