As price moves into my setup areas, "the other trader" is always at the forefront of my mind.
Who created this recent move against market bias? Are they trapped? Are they feeling stress? Where is the point of extreme stress at which they'll bail out of their position?
If I can't feel someone on the other side of the market getting it really wrong, there is no trade.
In recent weeks we've looked at some examples which include a break of a key level, which then stalls and fails.
You can see these recent articles here:
These type of trap scenarios provide some of my favourite trade entries.
But we don't always need a break of a level in order to find trade opportunity.
What we're looking for is a move, against market bias, into a REALLY LOW PROBABILITY place to trade.
Like this, for example:
Reality is never as nice as these "text book" line diagrams though.
So let's look at a real-world example.
There is no way I'm going to immediately fade such a move. It's not my style to step in front of any strength like this. Maybe these late buyers know something I don't know. Maybe the momentum will continue right through the High of Day.
But… what if it doesn't?
What if price does stall? What if the late buyer is placed under extreme stress?
This could perhaps offer us entry short, for a snap back towards recent lows.
So let's zoom in to the lower timeframe chart to see what happens.
Place yourself in the mindset of anyone who entered late in the initial rally. Perhaps someone who jumped on board the massive spike of momentum as price accelerated into the highs.
How would they feel during this stall?
Perhaps a little concerned, I guess. But certainly I don't imagine they'd be giving up yet. It still "looks" like price wants to rally.
Well… at least it did until this happened…
If you're not achieving the results you wish to achieve, consider placing more thought towards who is on the other side of your trade.
It may be the paradigm shift you're seeking to take your trading to new levels.