We've talked in previous articles about the fact that the best opportunity is found close to the edges of the market structure.
Or another way to express the idea… "Confirmation is risk!"
Typically when posting these sort of articles I get a comment or two of the following type:
- "You can't buy there… there is absolutely no entry signal", or
- "You're just trying to catch a falling knife!" (See here for one previous example)
But again, let me come back to the comment provided in last week's article, "Confirmation is Risk! (Part 2)"
"Why shouldn't we try to pick tops and bottoms? That's where the risk is smallest and the profit potential is greatest."
Standard TA won't make you money! You can't just do what everyone else is doing. You need to be smarter than the crowd.
You have two choices.
1. Look at a chart at a point of reversal and say with stubbornness:
- "It's not possible to enter there."
2. Or look at the same chart with curiosity and say:
- "Professionals traded here. They didn't wait for confirmation. So what did they see that I was missing?"
Curiosity and it's associated growth mindset will get you a lot further in this game than stubbornness and a fixed mindset.
Let's look at a few examples, from different markets and timeframes as those offered in the earlier articles.
We'll be limited to the Trading Timeframe (TTF) charts only. We're missing Higher Timeframe context and the ability to fine-tune our analysis via the Lower Timeframe price action. But in selecting these examples I've not just chosen the highest swing high reversal, or the lowest swing low reversal. Instead, I've chosen turn points which have TTF context and price action features that should make them "easier" to see. So look at the charts and see if you can identify reasons to provide confidence in entry close to the turning point.
Don't worry about "how" you can enter there. There are many ways we can achieve this, through lower timeframe weakness and a YTC Price Action Trader entry trigger (Vol 3, Ch4, pp 70-98) or a YTC Scalper wholesale zone entry (pp 91-106). Or you can use other methods to build a position through multiple scale-in entries.
For now though, don't worry about "how" you can enter.
The first stage is being able to see the areas with hindsight… then being able to see them in real-time… and only then learning how to get in.
Today… examine these charts and stretch your mind and your analysis to new and exciting areas of exploration… and simply see if you can identify reasons to buy or sell in these areas.
This is not a "Holy Grail" approach to trading.
Sometimes you can't get a position on in these areas.
And naturally, sometimes they lose.
But as discussed in the recent "Confirmation is Risk" articles (linked to above) the real advantage is that when you get it right, you've got an exceptional reward:risk opportunity.
And that is the key to good trading.
Review the above charts. Find something common amongst all examples which may indicate a reason to be seeking entry in these areas. I'll add my thoughts in the comments section of this article in a week or so.
ADDITIONAL NOTE: 25th July 2015
I'd like to share a reply sent to a reader who emailed me to say he tried this idea with two trades and they didn't work out, entering short both times at what he assessed to be a market top because he thought the market would go down.
My first thought is that I hope you test all new ideas on a demo platform before applying then in live markets. It's a wise practice to implement, if you don't already do so.
This concept is quite advanced. It's not something you can implement just because, as you say, "I was sure that Market would go down".
It must be applied in the correct market context. And it requires significant skill in recognising exhaustion at the market edges. Success in this method comes through (a) exposure to the idea which you now have, and (b) a significant process of deliberate practice in reviewing and studying turn points in the market till you develop rules for when and where it is wise to do so.
This article does not provide rules for how to identify which highs should be faded, although I suggest one criteria in the comments section for one way I do this.
From a conceptual level, which is where the article focuses, the idea is still valid. Who was short at the market turn points? It's not the amateurs. It is the professionals. If you want to trade in the same places they do, you need to study the turn points to learn to see what they're seeing.
Getting it wrong twice and then blaming the concept, is not the right approach. Study the actual turn points. Lots of them. Find common features that will allow you to develop some rules of thumb for when it is worth taking one of these entries. Because to do so, when you get it right, it can offer an exceptional R:R.
Hope that helps. I'd be happy to look at the Nifty charts and offer some comments, if you're interested in sharing them. Just add some text on the chart outlining your analysis and your entry/exit points.