I love this comment from David on last week’s article – Long is Wrong 2. The key part is highlighted.

<image: Failure Scenarios>

I’m actually really excited to see someone recognise the importance of watching for failure scenarios.

Opportunity exists at the places where large numbers of traders get something wrong.

The times and places where obvious expectations fail.

The most common example being breakouts of OBVIOUS higher timeframe structural features (levels or patterns).

<image: Failure Scenarios>

<image: Failure Scenarios>

<image: Failure Scenarios>

Let’s look at an example from last Friday – a clear and obvious break of a key overnight level – which fails right on the market open.

<image: Failure Scenarios>

<image: Failure Scenarios>

<image: Failure Scenarios>

<image: Failure Scenarios>

<image: Failure Scenarios>

This was ONE AND DONE for me. It’s late in what has been a long and challenging week. And approaching 1:00am my time.

Thankfully, the market offered an opening move which was smooth and one directional.

When there is a clear and obvious change in the structure, make sure you consider and visualise multiple scenarios. The break may hold. And opportunity may be present in the breakout direction. But consider the failure scenario as well. Assess the structure and ask whether or not a higher timeframe structural trap could provide even better opportunity.

Because if it can, you want to be ready for it. The entry can come quickly. And may not give a second chance.

Happy trading,

Lance Beggs

 


 

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5 Comments

  1. We had almost identical entries for that same trade idea. I was eyeing the LTF hard for that entry; understanding that opening drive/ trapped trader order flow more than likely won’t offer a pretty pullback entry. Most times only offering a slight stall in momentum with enough time to verify the opposing price movement doesn’t have steam. Our post-entry trade management was quite different, though.

    You took down most of that move and I closed my entire position just past your first partial; resulting in a 1R trade for me. I am currently struggling to break out of my 1:1 reward to risk shell. I enjoy the safety of a high win percentage and minimal exposure to the markets. I am quite pleased to see myself pulling consistent profits with my current approach. But I’m haunted with insecurities that I am not “doing it right”. I’m leaving far too much on the table and often find myself accepting 1R trades from multiple R moves.

    I recall you describing a disconnect among many inexperienced traders. Every traders knows trades will lose and yet there exists an irrationally strong desire to win; resulting in a prevalence to exits trades early. The rational side of me understands the concept of edge completely 100%, but my emotions are preventing me from truly internalizing them and acting on them. Nevertheless, I’m obligating myself to venture outside of the 1:1 safety zone in an effort to become a real trading badass.

    Fortunately, I’m able to recall lessons you taught me about the importance of letting trades run during directional markets. Allow for big wins during favorable conditions and keep losses small during the unfavorable ones, thereby creating a good average win to loss ratio through a series of trades.

    As you have mentioned before, the function of MSPA journaling is quite diverse. Admittedly, I’ve mainly used them for refining trade ideas in the pursuit of excellent entries or keeping current with recent market tendencies.

    But, MSPA journaling is for anything a trader needs to get better at. Simply identify problem areas and then seek out and collect many examples of these problem situations. Study those situations and become intimately familiar with them.

    So, for me, I will collect many examples of good directional price movements in those areas in which I like to trade. I won’t have to look far, though. I can just review my own trades. I’m always closing 1R trades from 6R moves.

    But, as you say, it takes time to develop, understand, and trust in concepts related to edge; then ultimately in my own ability trade with edge. Noting that trading with edge is so much more than just being consistently profitable. And so the never ending journey continues and I can’t thank you enough Lance for your guidance.

    1. Hi David,

      Yes, it will definitely help if you make further MSPA study of places that did offer good follow through, or just study your trade history (1R rather than the available 6R). In addition, you might benefit from a more rule-based exit approach for this subset of trades. So for opening drive or similar trades you might for example say “The second exit is only to be exited at either (a) HTF target S/R or (b) on a close beyond the trailing EMA(8)”. Note that’s just an example, so you’ll want to look at your past examples – EMA(8) was just made up. The point being, a rule-based second exit can help you HOLD the trade for those setups where more is available, but discretion keeps taking you out. Get rid of some of the discretion.

      The rules can then be reviewed after a series of trades, and adjusted if required.

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