Here's an interesting little exercise that may help you to see charts in a different way!
Where do you see the opportunity in this chart?
Don't think too hard. There's no trick. Just first impressions. Where do your eyes instantly go if you're seeking opportunity for profit?
If you're like most traders, I expect you'll have said that opportunity is found here:
That's fine. I guess this is how most of us are trained. I imagine I would once have given the same answer.
Entry at A should have given somewhere in the vicinity of 15-20 pips profit, depending on exit. Most likely that would be closer to 15 unless you just happened to have a target near the lows.
Entry at B should have easily given 10 pips.
Congratulations if you traded this session and caught one of these trades.
As you might imagine, I see the chart differently. I see opportunity in a slightly different way.
There is of course no right or wrong. If your preference for trading is to catch these type of momentum moves, that's great.
But for me, there are two problems.
Firstly, the market doesn't always offer these moves. And when they appear to be setting up, you'll often find that you're caught in a trap and have simply given back your earlier profits.
These opportunities are few and far-between. That's not to say you can't profit from them. You certainly can. You just need to catch enough of them; and maximise the profits in those that do run; in order to overcome the many losers.
And secondly… for me… this is kind of missing the real opportunity within the charts.
The following chart shows where my eyes instantly settle, when looking for opportunity:
Note that I don't see the whole move. My eyes seek out areas where price has stalled or trapped other traders at the edges of the market structure. Areas that may offer a lower timeframe stall or pattern based entry in a very wholesale location!
And importantly, these are areas which are much more common than the momentum moves.
Some only offered a breakeven or small profit result (E and K). Some only offered in the vicinity of 5 to 10 pips (F, G, H, I, J). This particular example shows a tough narrow range session!
But in every case, the entry was in a position that could well have profited from an extended move, were the structure to break in that direction (such as occurred at D).
This is a result of a mindset that sees opportunity at the edges of the market structure, as we discussed last week (see here).
This is a mindset that operates in accordance with the ideas discussed here and here and here; taking entry when the other side has exhausted itself and cannot continue any further.
This is a mindset that sees the market as "people making trading decisions" rather than just identifying price movement and jumping onboard in the hope that it continues.
This is a mindset that recognises that the markets we trade are usually not offering nice smooth extended trends.
Instead it seeks to profit in the steady back and forth action of the market; entering at the edges of the market structure.
Again, there is no right or wrong. If you like the few-and-far-between momentum moves, there are ways to identify the times and places that have better chance of good follow through. There are ways to profit like this.
But for me, I prefer the more regular and not-so-obvious swings back and forward from one edge of structure to the other.
Have a look at your charts from the last few weeks of market action. Can you identify the places at the edges of the structure, where price has stalled or formed a trap, before reversing back into the prior structure? Perhaps you can learn to see them as they occur at the hard-right edge.
This is a different and less-common way to view market opportunity. It takes practice. It's not easy at first. And it's certainly NOT for beginners (stick to a demo if you try it). But it suits my personality. Perhaps you'll find it to your liking as well.
Hi Lance ,
Today i was reading your old article and i have one question.
How r u looking to short on point D .?? I think it is PB or CPB setup so we should buy.
Bharat, the article does not give the whole picture as it’s missing the higher timeframe structure. Had the highs been coming off a resistance level, with the strength shown in that first downswing, I’d certainly be looking for a short on any weaker pullback in towards resistance. It may be that this was what occurred. However, let’s assume that was not the case and there was no resistance. In such a situation I would NOT be looking for a PB opportunity long. Note the depth of the pullback and the strength under which it occurred. If you want to look long, it’s a CPB opportunity ONLY. However, given the bearish strength, followed by the weaker rally, the trade opportunity at D is also valid if one is experienced enough to foresee the reversal. It’s not pure-YTC PAT, but a little more advanced in that it looks ahead further for potential changes to structure and future-trend. With-strength, against-weakness, if offered a low-risk opportunity, such a trade as taken at D offers exceptional R:R should the trade break to new lows. And at least the opportunity to salvage a small profit or breakeven result if the session lows held. Hope that explains it. It was 9 months ago. There may well be resistance in which it makes complete sense. Without resistance, I still love the trade, but it’s not an easy one to take. If you’re looking for CPB, I’d be happy with that as well, although no opportunity was provided for entry and you’d simply sit on the sidelines awaiting the latter opportunity.
Want to know 123 reversal in detail. Thanks sir…
It’s a lower timeframe trigger pattern used in the YTC Price Action Trader strategy.