I received some interesting comments about a trade in a recent article – https://yourtradingcoach.com/trading-business/the-good-the-bad-and-the-ugly/
Here's an image from the article, showing the entry SHORT against a single wide-range bullish candle.
Review the original article if you want to see the context behind the trade.
For now though, I want to discuss some concerns that a few people expressed. Because I imagine there are a whole lot more who felt the same thing.
The feedback was quite varied in nature.
A couple of people really "got it". They understood that while the candle appears to show great bullish strength, the internal movement didn't necessarily suggest that was the case.
But many more expressed concern, either commenting on the post or via email. Some short extracts:
- "I don't understand, how you are comfortable to take up the 2nd setup"
- "But it's scary."
- "What if it fails?"
I get it!
Here's the thing…
YES…
It is scary if all you see is the strong bullish candle.
BUT…
It's in a good contextual location. It has a good R:R. And I don't just place a limit order and let it get overrun. I'm watching and waiting to see some inability to continue further before placing the entry order.
SOME IMPORTANT POINTS:
- These are some of the toughest trades that I do take (from a psychological perspective).
- They're simple in concept. But they are not easy.
- They're not for new traders.
- If you're not comfortable with them, don't take them. Stick to the easier ones. But learn from them. Maybe take note of them when you do see them and then study them post-session. As you gain experience it might be something you one day add to your game plan.
- Again… let me reinforce the last point. You don't have to trade these if your skill level is not ready for them. There are much easier setups available.
I went looking for something similar over the last fortnight, so that we could work through another example. But there hasn't really been a great example since then.
But then I thought maybe this one will help.
The context is different. But the fear is much the same.
Whenever I've posted these type of trades in the past I tend to get much the same feedback – "There is no way you can enter here!", "You're stepping in front of a freight train!", "It's too scary!", "But what if it fails?"
One other thing I like about this example is that it slows the process down, with the end of the pullback occurring over 3 candles. This might make things a little easier to see.
So anyway… here it is…
As we discussed here in these articles, until I see evidence of the break lower holding these levels, I'm expecting a break like this to fail.
- https://yourtradingcoach.com/trading-process-and-strategy/gaining-confidence-in-taking-the-trap-entries/
- https://yourtradingcoach.com/trading-process-and-strategy/gaining-confidence-in-taking-the-trap-entries-2/
It's a simple shift in mindset that makes these traps easier to enter.
Of course, it's never completely comfortable.
The move down to the level does display some bearish strength. And as readers of my ebook series will note, I'm not a fan of fading strength.
But in the case of a break of a level like this, at the end of a long move, it's the behaviour of price AFTER THE BREAK that really matters.
Will price show continued bearish strength and drop like a ton of bricks? Or will it stall and then break back higher?
As I noted earlier, I do NOT just place a limit order in a situation such as this and hope that it all works out ok.
I watch. I wait. And if I see evidence that the selling is perhaps all done, only then will I consider entry.
Let's move forward and see what happens.
Here's the outcome: (clearly underperforming when you see the TTF eventually break to new highs… but still it's a good trade!)
I mentioned earlier…
It's in a good contextual location. It has a good R:R. And I don't just place a limit order and let it get overrun. I'm watching and waiting to see some inability to continue further before placing the entry order.
This applied with the trade two weeks ago.
And it applied with today's trade.
This is what gives me confidence to enter.
And if it fails?
So what? It's one trade.
If it loses, I'll keep the loss small.
This is not a game of certainty. The market environment is uncertain. Some trades will win. Some will lose. Work to keep the average loss smaller than the average win.
Let's wrap up…
Yes, it's hard to enter against a break. Or against a strong single candle pullback.
If you're not comfortable with this, stand aside and wait for something easier. But observe them. Make decisions as you watch them live. And take notes. Study them post-session. As you gain confidence, you might want to consider sim trading a few. And eventually trying them live (small size).
But if it's in a good contextual location. And if the R:R is acceptable. Then watch. And wait. And if price shows that it's given all it's got, and appears unable to move any further in the pullback direction, then take the trade.
Manage it.
Keep the losses tight. And if it wins, then squeeze it for all the profits you can get.
Happy trading,
Lance Beggs
just look to the left, then you know, why price stops there, test of the entry bar from the bears http://screencast.com/t/TiXkbXNxwEK
a small buy climax
a TRI is traded with either a BP or a fBO, can even take a not so scary trade S below the next bar, the fBO
Agreed. With the right understanding of market structure and ability to read the sentiment within price, these are both great trade opportunities. Hence why I took them! 🙂
Those who contact me expressing fear of fading what appears to be a strong candle, or a break of a level, have clearly not yet developed this level of skill and/or knowledge. And likely have not yet truly understood the probabilistic nature of the game and the fact that edge plays out over a larger sample of trades.
Hi Mr Beggs, thank you for the article! Great source of knowledge!
Can we consider this PA as a 3-swing retrace in an uptrend (with possible transformation into range)?
http://i.imgur.com/EC1ehZA.png
Hi Johnny,
Technically to call it a a 3-swing retrace I’d require point 2 to be below the original swing high. Otherwise it’s really a double-top formation.
But if you wanted to look at it this way I’d have no problems with that at all. In both cases, our bias is still LONG and we’re looking for some kind of pullback entry.
I was well aware though of the fact that we were close to having transformation into a range. This is part of the reason for my underperformance with the second part of the exit. I held part two in the hope that it would break to new highs, but once the top was in I scratched. It then went higher without me. I’ve looked at this a dozen or more times since. I’m still happy with my exit decision, despite “what could have been”.
When people are fearful big bars it that shows that they don’t fully understand orderflow concept, it comes after screen time once you think about ( price behind the scenes). Think of it that helps you best. Price itself needs to find the most amount of orders, so sometimes there is a vacuum effect with price made from it price structure, less orders within already visited price wide range, clears the path,(see price will find “the least path of resistance” ) price needs to find hidden or freshly stacked orders before moving on again. Each visit strips more orders away each time. So within ranges with price making multiple revisits bar can be seemed strong to the eye but are quiet opposite. low liquidity or very little orders within so price, price can stall next or can move fast looking for new orderflow. Change your fear state psychology here to opportunity. trading with overall trend you will have odds on your side.hope it makes sense to someone!?” trader helping traders”
Makes sense to me! 🙂 Thanks Joel. You’re absolutely right. Anyone who is fearful when faced with large bars does not fully understand orderflow. More study is required in this area – market microstructure, auction market theory. and lots of screen time and thought about “what is happening… and why”!
Hi Lance.
Reading your articles through this time and comparing them with YTC PAT ebooks, I’ve got the feeling you’re becoming more conservative placing your first target. Am I right or is just a feeling?
I mean: According with YTC PAT strategy, the first target would be “the next level which is expected to provide opposing orderflow”, so in this concrete example, maybe by the time you wrote that ebook series you would have placed T1 just below the previous swing high congestion and hold part 2 expecting to break new highs?
Again, it might be just a feeling or maybe I need to also read YTC scalper…
Regards.
Hi Sergio,
Good observation. I’ve certainly noticed it myself and would agree 100%. Over time my initial exit is definitely being taken earlier. In the majority of cases they’re still based upon the same TTF structure. But in the past where the target might have been right up close to the level, at the moment they’re well before. But there will certainly be times I’ll base them on LTF structure as well.
I’ve played with the idea of increasing the scale out to three or even four parts, but haven’t explored that in depth yet, beyond a few minor trials. This would allow me to spread the exit over a greater range. It’s something I must do.
Ultimately I guess all that matters is that you select the style that best works for you, provided of course it contains edge. Closer exits will have a better win% but worse WLSR. Further exits will have worse win% and better WLSR. Track the stats and see what works best for you.
Best of luck,
Lance.