Monthly Archives: October 2015

False Breakout Trap Review

 

I received an email last week from a student of the YTC Price Action Trader, which I ABSOLUTELY LOVE.

Actually, I receive a lot of email which I absolutely love. But sometimes they just stand out immediately as something really special.

It was a simple email, containing just one image (shown below).

And the only text was in the subject line: Thank You

Yeah, that made my day! 🙂

False Breakout Trap

Let's look at the trade, using this 1 minute timeframe as the Trading Timeframe (noting that this is more a YTC Scalper timeframe than YTC Price Action Trader). If you use a higher timeframe, that's fine. Don't discount the lesson. Look to the ideas and concepts and apply them to your own trading timeframe.

What I love is the simple fact that to most newbies, or most traders of simple text-book style technical analysis, there is no obvious reason to short.

The newbies have a limited view of price movement and opportunity

Let's look at how I see this price movement.

What immediately excited me was WHEN this trade occurred. So we'll start with that.

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Retesting the Point of Structural Change

 

I posted the following on social media a few weeks ago…

  • The first pullback after a strong and decisive break from an obvious structural pattern, should be considered a MUST-TRADE scenario.

 

Retesting the point of structural change

There was a comment made to the post which I absolutely love. I've copied it here:

Social media comment

Now, I don't advocate trading just one pattern.

But this one… should definitely be in your trading arsenal.

Note the three points displayed in the social media post above. The key is ensuring you have these in place.

  1. An obvious structure!
  2. A decisive break!
  3. A pullback towards the point of breakout!

 

From a metagame perspective...

Let's look at this idea play out in a few other charts.

And why not mix it up a little as well… with a completely different market and timeframe.

Here's the AUD/USD spot forex pair on a four hour chart.

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If I Could Only Take One Trade

 

This is a VERY useful question to ask yourself as a trade is setting up:

  • If I could only take one trade this hour, would I be happy to make it this one?

Of course, adjust the time to suit your style of trading. One trade per half-hour, per 4 hours, per day, per week… whatever suits your trade frequency is fine!

This question forces you to step back away from the excitement of the price action and the nervous tension associated with entry, and to briefly consider the quality of the trade.

If I could only take one trade this hour, would I be happy to make it this one?

If the answer is an obvious YES… take the entry.

But if there is any doubt… consider passing or waiting for more information.

You don't have to take every trade. A question like this can be useful in filtering out the lower quality trades. Give it a try!

If I could only take one trade this hour, would I be happy to make it this one?

If I could only take one trade this hour, would I be happy to make it this one?

YTC Price Action Trader references:

So would I take this trade?

If I could only take one trade this hour, would I be happy to make it this one?

ABSOLUTELY YES… EVERY TIME!!!

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You’ve GOT to Target Multiple-R Winners

 

Most trades will typically fall in the range from -1R to +1R… hopefully more on the positive side of that range.

But for most of us this does not mean you should be targeting 1:1 trades all day, every day.

By all means take them if you assess them as being a higher probability play. But you'll need to maintain a 70% or more win-rate if you want to achieve any decent long-term profits with ONLY 1:1 trades.

That's a tough ask!

It's far better, in my opinion, to aim to break up that stream of -1R to +1R trades with the occasional large multiple-R profit.

When market structure and price action suggest the potential for a multiple-R trade, target those higher returns.

 

You've got to target multiple-R winners

You've got to target multiple-R winners

You've got to target multiple-R winners

 

So the obvious question is, "When should we be more patient with a trade and hold it for a larger runner?"

There is a recent amendment to my pre-session routine which can help answer this question.

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