Tag Archives: Bias
For all those times I'm asked by email, "Why were you selling today when the market is bullish?" or "Why were you buying today when the market is bearish?"
So when someone says that a market is bullish… or that a market is bearish… that actually means nothing without some idea of time scale.
or… Why I held this trade drawdown longer than I usually would!
On Monday I entered a PB short in expectation of a downtrend continuing lower.
By far the best entry area would occur on a weak pullback to the shaded region (A).
And the last Trading-Timeframe (TTF) green candle certainly makes it seem like that's a possibility.
But the Lower Timeframe (LTF) stalled and offered a double top entry at short-term resistance, so I entered a position as I didn't want to miss the chance of strong continuation lower (B).
The plan was for an immediate reduction of risk should price break the short-term ledge (C) with a stop for the remainder a few ticks higher. I'd then seek another entry opportunity higher in the vicinity of A.
A fortnight ago we looked at a few trades which were entered using the concept of "buying because there are no more sellers"… or "buying because the market can't go down".
I've received some requests for another example. And two people asked to see what I'm looking at on the lower timeframe.
So let's look at a couple more trades.
First though, we've discussed this idea a few times over the last six months or so. If you want to review some of the earlier material, try some of the following. There may be more if you search through the archives as well.
For one more example, let's look to the emini Russell (TF) on yesterday's session, Tuesday 26th of August.
Let's back up to the start of the session and get some context from a slightly higher 5-Minute timeframe.
Establishing a bias intra-session is a simple process of following our 6 principles for future trend direction.
It's a little more difficult at the session open though, when the lack of prior data adds to the uncertainty.
Last week we worked through an example in which we established a bias from the open. Essentially it's a process of "best guess" based upon judgment and experience, as we reconcile the often conflicting information provided by pre-session trend, position of the open with respect to the prior day's close and range (high-low), position of the open with respect to support or resistance, width of the new opening range price bar, the direction of break of the new opening range high or low, and of course the strength or weakness of the opening price bars.
Read that article first if you missed it: http://yourtradingcoach.com/trading-process-and-strategy/establishing-a-bias-from-the-open-part-1-of-2/
Today, let's work through another example, offering a variation on the initial opening conditions and the subsequent attempts to determine bias.
We'll start again by looking at two different views of the market at the time of pit-session open.
The first is the pit-session only higher-timeframe chart, which shows the position of the open with respect to the prior day's close and prior day's range. This is followed by a trading timeframe chart showing the position of the open with respect to the pre-session trend.
My method of establishing a bias, or an expectation for the future trend direction, is done through six basic principles of price movement, as listed in my YTC Price Action Trader ebook series.
This requires prior price action as it's based partly upon analysis of previous bullish and bearish price swings and trends.
So what do we do when the market initially opens and we don't yet have sufficient price swings to determine our bias?
I'll attempt to demonstrate below using the open from a Crude Oil session earlier this week. As you'll see, there are no fixed rules and there is a lot of uncertainty. The charts provide little information. Analysis, as well as confident and decisive action, relies upon judgment and experience. And effective trade management relies upon your ability to drop or change a bias as soon as opposing information comes to light. Often you'll be required to adjust your bias as price behaves somewhat differently to your expectations.
While lacking experience in the early days, by far the better option is to simply avoid this period of time. Delay your first trade until the market has had time to establish sufficient swing highs and lows to confirm a trend and market bias.
But until you have the requisite experience, don't just blindly wait for the trend. Use this time to watch price movement and make your best call on the bias. You'll get it wrong a lot. But each time you do it you're learning and gaining the experience that is necessary for expert judgment.
Here we have the market opening on Monday, July 22nd, 2013.
Price opens the pit session at 108.52. Let's see what we know already. The following two charts show different views of price at the open; the first being the higher timeframe 5-min chart showing the pit session data only, and the second being the trading timeframe 1-min chart which includes the pre-session (overnight) data.
Excerpt from email received at YTC:
I have attached a couple of 5 min charts for you to take a look at. Both charts show a strong quick move, one is 60 pips, the other 80 pips. (I trade using 60/30 min, 5 min, and 1 min charts… so 5 min is my trading timeframe)
I am often very hesitant to trade after a move like this. Could you share with me your thoughts and the process you would go through in assessing the market after this type of move?
By the way, the second chart does form a complex pullback and then breaks the low by 12 pips or so at the time of this writing.
Lastly, I would like to again thank you for all you do. I’ve been following your web site for about 4 years now, and purchased your YTC Price Action Trader book just after Christmas. I’m well on my way to realizing my dream of trading for a living. I’m not there yet, but on my way!
I find the "grey areas" on a chart fascinating; the areas where our bias or premise start to show signs of breaking down and our decisions are clouded by the uncertainty that prevails at the hard right edge of our screen.
This is where real learning happens! Where your knowledge, skills and attitude are pushed just beyond their limits.