In helping you travel the path from novice to pro trader, let's consider the following quote:
“Things do not change; we change.”
… Henry David Thoreau
It's the SAME price action.
It doesn't change.
The only difference is that I see it in a different way.
There are several paradigm-shifts along the path from novice to pro, where you are required to see price movement and the game of trading in new and more effective ways.
This sequence of price action demonstrates several of the insights that were important in my development. Perhaps they are a necessary step for you as well?
- Expect breaks against bias to fail.
- Confirmation is risk.
- Enter long, not because price has moved higher, but because it can't move lower.
It's the same price action.
It doesn't change.
You need to change.
You need to learn to see price movement through new eyes.
I think this is a very nice article. I however have a question. On your very first chart you put the question “HOW do you enter long here?”. I highlighted “HOW” and not “LONG” because “HOW” is the question for me. I understand the concept of “WHY” you enter, but it is not clear why you say that the “breakout … fails at B”. I cannot see any reason for the location of B other than it is as far from the breakout level as the lower end of the candle from the breakout level. Could you please elaborate on this? Thanks, Jozsef
That would take a whole other article Jozsef, and wasn’t the focus of this article. Rather my focus was to present the three concepts listed in the bullet points. That is the most important part. The HOW comes from applying those three concepts in the charts.
That being said, the entries were standard YTC Scalper entries in the Wholesale zone, after confirmation of a lack of strength against my bias (on both price and NYSE Tick). If you look at my facebook page where I linked to this article, the comments include a copy of the lower timeframe range chart (at the request of one of the other readers).
Lance, thanks a lot, for the link, too – “enter when it seems right” is an interesting concept, it seems that it limits risk and increases profit potentials. I will keep on learning…
I don’t know about an ‘interesting concept’ Jozsef, but I think, as an entry concept which cannot be quantified, it would be a very dangerous concept (for your trading capital, both financial and psychological) if you haven’t fully internalized the realities of trading and developed the ability to be in ‘sync’ (and to recognise when you’re out of ‘sync’) with price behaviour.
Jozsef & Stephen,
There’s a whole lot more than just entering “when it seems right”. This is a YTC Scalper style entry. The setup requires a good read on bias and the volatility of the current market. The entry requires an ability to recognise “inability for price to move any further against your bias”. Essentially you’re looking for the same idea as a breakout failure, but on the lower timeframe. For example, price has broken an existing level, but there is no strength. No price rush. No NYSE tick push to new highs/lows. Price stalls. And reverses (if you don’t wish to preempt the reversal). If you can recognise a breakout failure on higher timeframes, as they occur, then you can also learn to recognise them on the lower timeframe. That is your entry criteria. Price has failed to move against your bias. That is when you enter “with-bias”.
Yes, as you suggested Stephen, it requires skill in identifying the bias. Beyond that though, as an individual trade it’s no more (or less) dangerous than entry anywhere else, provided money management and risk management plans are implemented and adhered to.
See here as well: https://yourtradingcoach.com/trading-process-and-strategy/gaining-confidence-in-taking-the-trap-entries/
And here: https://yourtradingcoach.com/trading-process-and-strategy/gaining-confidence-in-taking-the-trap-entries-2/
I really liked this post. I have coined these locations as FTM-U (failure to move up) and FTM-D (failure to move down). They are easily identified in hind sight – but the key is to identify them in real time. When they occur and are successful, they will occur at the edges of the channel, actually define it. I find/look-for the easier identifiable ones as being associated with the 1st or 2nd pull back of an identified move, beyond the 2nd pull back I take caution. Grinding moves are difficult and take a lot of wherewithal. Double bottoms/tops are also interesting, especially if all charts align. Volume, time of day, reports, round numbers, etc… add to the identification of these. And as you said, the risk is lowest when you enter correctly, it almost seems like a silly place to enter and a silly stop order when in real time. I really like the concept of – look for failure, not confirmation.
Thanks Terry, great comment. Much appreciated.
Wow. A wonderful article. I being a novice trader learnt something new which also makes lot of sense.
Here is what I understand:
1. “Look for failure, not confirmation” – a set up/strategy sounds really good because it offers the lowest risk and better reward (R:R ratio). It could still go against you if the next candle (in real time) turns out to be a large (engulfing) bearish candle. Well, anything can happen in the market where the only thing which is certain is the “uncertainty”. So better R:R ratio makes it a good strategy if we get the entry early.
2. I also went through the comments posted by others. I like the term used by Terry – FTM-U (failure to move up) and FTM-D (failure to move down). I will remember this forever. My understanding is that you use a lower timeframe (than the time frame you use for trading) to get the best entry in such set up by analyzing the price action (candle formation).
In a nut shell, this particular set up or strategy offers a good Reward:Risk ratio provided we get the best entry possible.
A question: What is the best Reward:Risk ratio you consider Lance? Most of the books I read suggested having a 2:1 ratio at least. I understand that one needs to be mindful of the fact that the market should offer the profit exit entry (based on our analysis/assumption of the next resistance level).
There is no “best” R:R. I know of traders who only operate with 2:1 or more. And some who operate with an inverted ratio (worse than 1:1). It’s a matter of finding the style that suits you and the way you trade. For my own trading, I will consider a trade provided it offers 1:1 as an absolute minimum. More is better. If I can’t get at least 1:1 then I will pass, or wait for subsequent price movement to provide me with a second chance entry with better parameters.