Avoid What is Strong – Strike at What is Weak!

 

Avoid What is Strong – Strike at What is Weak!

So in war, the way is to avoid what is strong and to strike at what is weak.
… Sun Tzu, The Art of War

 

Trading is not about prediction.

Instead we let the marketplace reveal it's plan and attack only when we see an advantage.

We play the game on our terms, or not at all.

Orderflow drives the market; orderflow that comes from the decisions and actions of all other market participants competing in the same arena as us.

Let them drive price where they will; as determined by the collective sentiment of all who comprise the marketplace this day.

We simply observe. And wait.

Like the lion who waits patiently to attack the weakest in the herd, we avoid the market when it's strong and strike only when it shows it's weakness.

Trading is not about prediction.

It's also not about emotional reaction once we perceive weakness.

Our awareness should always be ahead of price (see the "Projection Phase" in this article) maintaining IF-THEN scenarios for likely future price action and what it means to those who hold trading positions.

Through maintaining these IF-THEN scenarios our reaction to the market movement will be preconsidered and decisive.

We attack when we see weakness.

We attack when we see someone trapped against the real bias of the market.

We attack when our risk can be contained.

We attack when we perceive potential opportunity greatly outweighs the risk.

Let's start by looking at the structure of the E-mini Russell as at the release of the FOMC Statement on Wednesday.

My higher timeframe is the 5 minute chart, but we'll commence first with a 30 minute chart in order to see a few days of data so that you have a wider perspective.

Avoid what is strong; strike at what is weak

 

Zooming in to my usual higher timeframe (5 minute chart)…

 

Avoid what is strong; strike at what is weak

 

And now the trading timeframe (1 minute chart) (*Note: The concepts discussed in my articles apply to all timeframes. If you use different timeframes from me, just scale up as required.)

 

Avoid what is strong; strike at what is weak

 

Let's now move forward a few candles at a time to see the outcome.

 

Avoid what is strong; strike at what is weak

 

Avoid what is strong; strike at what is weak

 

Avoid what is strong; strike at what is weak

 

Avoid what is strong; strike at what is weak

 

Avoid what is strong; strike at what is weak

 

Avoid what is strong; strike at what is weak

 

Trading is not about prediction.

Our awareness should always be ahead of price maintaining IF-THEN scenarios for likely future price action and what it means to those who hold trading positions.

If price fails to act in accordance with our expectations, then we adjust our IF-THEN scenarios.

But if price does validate our expectations, we can act in a preconsidered and decisive manner.

In the above trade example, initial signs of bullish strength led to expectations of a bullish trend.

  • IF bullish strength continues as price drives higher and pullbacks show weakness THEN opportunity will be sought LONG on a failure of the weaker pullback.

The pullback was strong, invalidating this plan.

Strength showed towards the bearish direction.

  • IF bearish strength should continue through the Intra-Session Low and any pullbacks show weakness THEN opportunity will be sought SHORT on a failure of the weaker pullback.
  • But IF a break of the post-news low cannot continue lower THEN this will be a sign of bearish weakness meaning that opportunity can be sought LONG on a failure of the breakout.

Weakness on the break invalidated the first scenario and confirmed the second.

The way is to avoid what is strong and strike at what is weak.

Good trading,

Lance Beggs


Written by

YourTradingCoach - Admin

26 Comments to “Avoid What is Strong – Strike at What is Weak!”

  1. Naveen says:

    Hi lance

    I have been regular reader of your articles.All your views are very good informative..Clearly Price action is the way..Thanks for sharing.New look of YTC.com is very good…

  2. Ashish says:

    Hi Lance

    I just chanced upon your site few months back. Its simply amazing.
    I am a regular reader of your posts, infact eagerly wait for your updates, although you have always mentioned there is no Holy Grail, but to me your posts are Holy Grail.Great Work Sir!

    Ashish

  3. Ashish says:

    HI Lance,

    I find all your info very useful. I am bit confused at the exact entry points you take/or need to take once a set up is identified. For Eg: price moves down to the previous day close, and stalls there. The signals therein can turn upwards, in such a case do we need to take an entry immediately after the stall ?
    Hope my query is not too long. Thanks in advance.

    • Lance Beggs says:

      Hi Ashish,

      Entry method is discussed in detail in http://www.ytcpriceactiontrader.com

      The general principle though is that it should be made AT or BEFORE the trading timeframe point at which those with an opposing bias realise they’re wrong. We trade against other people. Their decisions and actions determine orderflow.

      The lower timeframe is used to try to work a better entry, before the trading timeframe entry point, if at all possible. This is done via recognition of certain patterns which will provide a short surge of orderflow, in the hope that it will drive price to and beyond the TTF entry point.

      The earlier the entry can be made, the better, from a R:R perspective. The more confirmation you seek, the worse the R:R (less potential reward and more risk).

      Regards,
      Lance

      • Ashish says:

        Thanks Lance, for the detailed explanation.

        Would request if you can illustrate with an example.

        Regards,
        Ashish

        • Lance Beggs says:

          Hi Ashish,

          I’m not 100% sure what you mean by “The signals therein can turn upwards, in such a case do we need to take an entry immediately after the stall ?”

          I’d assumed you were asking why I used the lower timeframe stall as the entry point. As such I’m unsure what further examples are needed, beyond this trade and every other one I’ve shown in the article archives, and the 100 or so pages of trade examples in http://www.ytcpriceactiontrader.com

          Perhaps I’ve misunderstood though. Can you clarify what exactly you would like illustrated with an example.

          Thanks,
          Lance.

          • Ashish says:

            Hi Lance

            Thanks for the reply.

            In this article – AVOID WHAT IS STRONG – STRIKE AT WHAT IS WEAK!
            pls refer the last chart – with the heading “The outcome” I would read the big green candle with a long bottom tail(just above the SL), as a probable entry LONG, reason being, the bulls have pushed it up, further the next red candle is low close range (If I am right)and does not go below the previous candle low, and the subsequent candle Green which is high close range, as an entry point. Pls guide :

            1. Am I right here? (I think the price will move up, since I am not sure about what candle unfolds to the right, in a live market) and my entry long is purely based on the first green candle, which has a long bottom tail.

            2. Once I am in trade, the 3rd candle from my trade , which is a low close red candle, I am trapped, not knowing to exit or to hold and finally I lose.

            3. Whereas, your entry is way too long on the right side. Why?

            This is what I was asking you about the right entry point or level.

            Hope to have your valuable guidance.

            Thanks!

          • Lance Beggs says:

            Hi Ashish, I’m really sorry but I can’t tell which candle’s you’re referring to. “big green candle with a long bottom take (just above the SL)… the only green candle with a tail just above the stop loss is the one on the price chart immediately after my TTF entry bar, but it’s certainly not large. And then subsequent bars in your discussion don’t seem to fit. Sorry! Can you please take a screen shot of the chart and annotate it with arrows and text to ensure I am looking at the right place. If you don’t have tools to do this, at least just give me the time for entry based on the times at the base of my chart. I’d prefer a screen shot with your explanations pointing to each candle if possible though. Thanks.

  4. Abdul Jabbar says:

    Hi Lance

    Thanks for the valuable lessons
    I have noticed that you never trade direct breakouts.
    I wonder whether avoiding this altogether make sense as many breakouts are followed by explosive moves without pullbacks. I would like to know your opinion about the positives and negatives of breakout trading and what are the ingredients for a successful breakout in your opinion.

    Jabbar

    • Lance Beggs says:

      Hi Abdul,

      I almost never trade breakouts. You’re right that some do result in explosive moves with no pullback entry opportunity. But in my experience they’re rare in number compared with those that fail and actually trap the breakout trader in a losing position.

      I prefer to just avoid the straight breakout trades and focus on those that better fit my beliefs about market movement.

      This is of course just personal preference. Some traders do quite well from breakout trades. You’ll need a process of trial and error to see how you feel about this style of trading. There’s no right or wrong answer.

      If breakouts appeal to you, look for hundreds of examples of successful breakouts and start to build a file of all the characteristics that led to the breakout. Typically things you’re looking for are either a period of volatility contraction pre-breakout. Or a really obvious structural featureh that traps opposite direction traders first, such that they are all stopped out at your breakout entry point. But real learning will come from building your own folder of a hundred plus examples and studying them.

      Cheers,
      Lance

  5. David A. says:

    I nvr understood the power of letting price leads the way. Until I saw this article.

    I’m learning breakout trade right now and my participation is to jump in with a clear indication when to exit off I’m wrong.

    but I never realize that you let price lead you wouldn’t have problem getting stop out in thr first place because price has shown the direction of a more stronger trend.

    Keep up.
    David

  6. Stephen (Pepe le Pip) says:

    Hello Lance,

    Follow-up from Facebook post.
    Was it only the 15 second chart price behaviour which gave you the confidence to take the trade?
    The last bearish down swing appears stronger than the preceding up swing, and the 1 min candle before your entry shows more selling (long upper tail) than it does buying; it also appears to have closed below the post-news low thus respecting the support turned resistance. Would it have been unreasonable to anticipate price moving lower following the candle before your entry candle?

  7. Stephen says:

    Hello Lance,

    Sorry Lance, my post was not querying how you knew the trade would work, but rather why, given the trading timeframe candle and swing behaviour, you took a long trade right into a level of resistance.

    On the fourth chart, you ask, “will price break the low and offer a weak pullback…” After the break, we did get an indecisive bearish candle (mid-close bear) but the following candle (low close range) showed more bearishness than bullishness because of the long upper tail along with its close below the resistance level. My premise would have been the weak pullback and continuation lower. The candle following your entry candle would have had me questioning my premise.

    With regards to a BOP, does the pullback price have to stay, in this case, below the resistance level or can it move above the resistance level before continuing in the breakout direction?

    Cheers,
    Stephen P.

    • Lance Beggs says:

      Hi Stephen,

      (1) The post-news low level we’re discussing is 1111.1. The entry was at 1111.2, just above the level.

      It appears that I’ve marked the level wrong on the LTF insert on the 7th chart. The TTF level was correct – just the LTF which didn’t align properly.

      I’ve corrected that so you won’t see it on the article, but if you look here you’ll see details of the error and correction. http://www.yourtradingcoach.com/images/stories/articles-2014/avoid-what-is-strong-correction.jpg

      (I suspect that what I’ve done is just mark the LTF level against 1111.1 on the right hand side of the image, the error being that these prices are for the background TTF chart, not the LTF insert.)

      (2) You said, “After the break, we did get an indecisive bearish candle (mid-close bear) but the following candle (low close range) showed more bearishness than bullishness because of the long upper tail along with its close below the resistance level. My premise would have been the weak pullback and continuation lower.”

      The close is actually right on the level, not below it.

      But yes it is a low close range candle. And certainly the presence of an upper tail immediately brings to mind thoughts of rejection and bearish strength.

      But don’t be too quick to assume an upper tail is a bearish sign. Imagine the scenario, for example, where the initial bullish half of the candle (up to the highs) occurs with quick and easy price flow, with the subsequent move back down to the close being in a more difficult, slow and laboured manner. ie. easy of movement up; difficult movement down. A static chart looked at after the fact will never provide us with this “live” information about speed and ease of movement. So they can be deceptive. An upper tail poking through resistance like this can actually be just the upwards breakout pullback, before again continuing in the long direction. It just shows as a tail because of our artificial breaking of the data into 1 minute time segments. The real market is a continuous flow… not discrete time periods.

      More important than the candle itself though, is what happens after. There was absolutely no follow through any lower. If this was indeed a bearish candle then it should have followed through below the low of that candle. It couldn’t. It stalled for about 30 seconds before breaking back higher. There was nothing bearish happening here at all.

      The “weak pullback” I was referring to on the 4th chart, would have been something that stayed at or below the level. Not something that pushed above it quite decisively, as occurred. That push up had me looking at a bullish scenario, not a bearish one.

      (3) You said, “With regards to a BOP, does the pullback price have to stay, in this case, below the resistance level or can it move above the resistance level before continuing in the breakout direction?”

      They can move above the resistance level, but it decreases the likelihood of success as it shows strength in the bulls. As I mentioned above, the fact that it moved back up so decisively had me looking at the bullish scenario (BOF) rather than bearish (BPB).

      But it could still have continued lower. The market does whatever the orderflow says to do. Perhaps had it had just a little more bearish orderflow such that it could break the low of the low-close-range candle, it may have found a new source of stop orders sufficient to push it lower again, triggering the start of a downtrend. Who knows how close it was to tipping in the other direction.

  8. Rein says:

    Hi Lance,
    Like your analysis, and I think it is useful to structure trades in the context of day high/low S/R structures. But can your approach be applied to Forex where pairs may trend over days? Somehow I find it harder to apply than let’s say the SPY.
    Thanks for your insight!!
    Best,
    rein

    • Lance Beggs says:

      Hi Rein,

      Absolutely! Yes, it can be applied to forex. Key session highs and lows have the same impact as daily highs/lows in the futures markets. They are areas to watch again as price interacts with them. The key is to not just blindly assume that S/R levels will hold. As you’ve suggested, in a trending environment, the reality is that they break. So it’s important to look at the context and look at the nature of price as it interacts with the level (strength / weakness analysis etc) in order to play the right approach (level holding or level breaking).

  9. Hi Lance,
    Firstly congrats on your excellent new look of the website…Its as clean and neat as your heart is..

    I always get confused on one thing…if you look at the 6th chart from top…my doubt is on the last 3 candles….cant we take them as a weeker pullback and go short as 1 nd 2 of the last 3 have an higher upper tail…after strong red candles one halt and weeker pullback to go short….can you please help me in clearing this mindset of mine.

  10. Sorry Lance.
    I think I found the answer on your reply message to Mr.Stephen…Thank you

  11. Andy says:

    One of your best posts for sure, thank you

  12. Tamal says:

    Its an awesome article!! I was trying to apply the same thought that you mentioned in the article to each of my charts. It is showing good results. Kindly post, whenever you could more information like this as well as thought process behind trapped traders. I am getting an A-HA moment reading fantastic information.

    • Lance Beggs says:

      Thanks Tamal,

      Thanks for your great feedback. I’m glad to hear you’re having an A-HA moment! 🙂 That’s made my day.
      Every article I write is an attempt to help someone somewhere in the world spark their next A-HA moment. So I’ll call this article a success.

      All the best with your trading,
      Lance.

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