It’s Monday morning and the markets open with a Simple Pullback Entry LONG.
BUT I DIDN’T TAKE IT.
Because it didn’t set up right for me.
A key principle in how I trade is keeping my awareness AHEAD of price.
No trade should be taken unless I saw it coming well before the entry candle.
We discussed this quite a few years ago – here and here. And in a “kind-of” related manner here and here.
In conducting my analysis my aim is to always think several candles ahead. Constantly updating the picture in my mind.
– – –
(1) Given the current price action and market context:
Where is price going? (next 1-2 price swings)
How do I expect it to get there? What should the price movement look like?
Will that provide trade opportunity, if price confirms my expectations?
What price behaviour would indicate I’m wrong?
The principles I use for projection are discussed in the YTC Price Action Trader (see the discussion on Future Trend projection).
(2) Price must then move into the setup area in the expected manner.
If it doesn’t, repeat step 1 and adjust the forward projection in light of this new information.
(3) And finally, I must be able to find a way to enter within the TTF/LTF structure.
– – –
So if I miss a trade, it’s because either (a) I couldn’t see it coming, (b) I didn’t like how price moved into the area, or (c) I just couldn’t find a way in that I liked.
What looks like a perfect trade on a hindsight post-session chart, often looks very different at the hard right-hand edge of the screen.
Let’s get back to today’s trade.
As price rallied from the open, this is where my focus was:
I’d like to think that without the overnight high at that location I would have easily been LONG from the first pullback after the opening drive.
And in fact when assessing with the benefit of hindsight, I should have really placed far less weighting on that level anyway. The overnight action was rallying and any RTH continuation would seriously be expected to break the overnight high.
But we don’t trade with hindsight.
We trade what we see at the time.
Project -> Confirm -> Trade.
And if no confirmation, let it go. Reassess and project forward again, in light of this new information.
And if it takes close to 30 minutes (or even longer) for the first trade, so be it.
Project -> Confirm -> Trade.
Project -> Non-Confirmation -> NO TRADE.
And if that means you miss one, so be it. Let it go. It wasn’t yours to take. Move on.
I can very much relate to passing on trades due to some S/R level interfering with how I would want the trade to set up. Personally I constantly struggle with deciding which S/R levels “matter” and which are ok to trade into. Years ago I used to get paralyzed by not wanting to trade into whatever S/R I could find! As you know, if you want to find levels there is a seemingly endless supply of them.
On a 95 gap up one can argue that the momentum will likely continue but on the other hand price could have also created a failed BO of the Globex H and reversed, right? Morning reversal and opening traps are not uncommon after all. So I try to think in terms of probabilities and I try to remember past experiences of large gap opens. A large gap up will result in a temporary bullish bias for me personally until proven otherwise but I would have definitely been cautious due to the Close below the ETH H here. The first 2 bars being dojis and thus creating a small TR might also make me less eager to put on risk so early in the session but that’s just my personal view.
I appreciate your posts very much, even though I follow another PA mentor’s method I still very much enjoy your insights, many of them being universally applicable. Keep up the great work, as I know you have been for what must be 10+ years now.
Continued success to you,
Yes, it’s always wise to keep all possibilities open in mind. Especially after a large gap open. They can certainly reverse. And more often than expected it’ll just be a gap and nap where it stalls sideways and chops everyone up.
It’s all about real-time assessment and only trading if you perceive edge.
The close proximity of the opening congestion to the ETH high did help with bias though, in that I had no intentions of considering a bearish bias (reversal of the gap open) unless price could break the RTH open lows. So when the initial break of the overnight high failed, it was a case of pause and wait for the next signal long rather than seeking any way to enter short.
The foundation of my market edge contains many parts, so it’s hard to determine what is actually at the bottom holding the whole thing up. This topic is probably it. When I accumulated enough NQ screen time and MSPA journaling, the ability to effectively plan for future price movement began to reveal itself to me; slowly but surely. It was the epitome of good things take time and effort. For me, it was the critical game changing skill in my pursuit for clean consistently profitable trading. “Planning for future price movement” grabbed ahold of me and seated itself deeply. Trading any other way became very undesirable and unnatural to me. This skill single-handedly cured my over-trading woes. Understanding this and what trading with edge truly means, allows for over-trading to become something of a quasi-oxymoron. There is no more over-trading when implementing “project-confirm-trade”. When live price action inspires the subjective perception of “edge”, the trade must be taken; regardless of when the last time a trade occurred or if the last trade was a winner or loser. This reminds me of a scene from the movie, “Any given Sunday”. A rookie quarterback gets his first NFL playing time and is playing very poorly. The rookie QB is struggling with the speed and violence of the NFL, so the coach calls a time-out to try and calm the rookie QB. He tells the rookie that the game is no different than when he was playing as a child in the street in front of his house. He reminds the rookie that the game is fundamentally simple and says to him, “just see it before you do it, and when you see it – do it”. So, yes coach, “see it before you trade it, and when you see it – trade it”.
Thanks David. That is just a perfect description of the concept – “see it before you trade it, and when you see it – trade it”.
I start to engulf 😁 your blog from this moment….nice and simple….
Haha. Thanks Jensar. Best of luck with your trading.