You missed the break out of consolidation, which led to the weak break of the previous high. When price was pulling back to the lower channel line just before 10:00am, you could trail a buy stop a tick above the high of each pullback bar as long as the lower line/previous support level holds. If that level breaks, you might want to cancel the buy stop and watch for further clarity as that could be a reversal signal. But the level held and price broke to a slightly higher high. That's the move you missed. You needed to be positioned from the pivot off support. The trend is mature; as you noted price had made an "average day's move" already, so buying a break of the previous high would require tight stop management in case of a failure. Keep in mind as an up trend becomes mature, bears get a bit more cocky at breakout levels. If the break is shallow, they'll jump in quickly and it could become a full blown reversal. If the trend is strong, this could lead to a consolidation period (which is what happened here after the third push up resulted in a shallow breakout around 8:00am). Since you missed the breakout signified by that big green bar, you now want to wait for renewed buying strength to take out a pullback bar's high. As long as that previous support level holds, the trend is intact and this is simply more consolidation. By trailing your buy stop above each pullback bar's high, you're taken into the long position off that LTL (via a break of the 10:30 bar high) which gives you greater opportunity for profit and a much smaller stop (just below previous support). I think the reason why so many people claim that trend following doesn't work is because they chase or react to momentum instead of preparing for the next trending move. If price breaks out strongly and you buy after the breakout, you risk getting caught just before a normal retrace and you'll likely be stopped out, then watch price go back in your favor.
I have felt this way and have changed my thinking recently, so I wanted to respond to this. Would you have really traded the pattern, managed it well, and had a profitable trade? Well perhaps, but we fool ourselves by the "grass is greener" outlook when we do this. I don't trade the euro anymore, but it looks like these days it's about as full of opportunity as any instrument we could trade. But so is ES, and oil, and everything else that we get to know well. The minute we switch over to something else, then the one we just switched from has a great day and we feel screwed! I played this little game with ES and CL for a while and finally just settled on CL. ES may have been just as good, or the euro, or anything else. My point in posting this is that this kind of thinking is probably not in our own best interests when we say it to ourselves! Had you traded ES, you may have looked at the euro and felt like you missed lots of good opportunities there too! Trading it live and seeing it in hindsight are two very different things!
Thanks for the walkthrough, NoDoji. Good point on the hindsight, Josh. For now I'm doing bar-by-bar walkthroughs of 6E 5-min charts. I'm not sure what timeframe or market I'd want to trade. For now it's about getting experience picking out patterns on the hard right edge. As Xpurt has said, if you can do it on the daily you can do it on the 2-min, so I figure a small timeframe will give me more data to practice with. Here is May 20. I had two trades as noted by the arrows. On the short just before noon I was little nervous, thinking "I'm shorting after a decline like that??", wondering if I was a little late. My entry was 1 tick below the low of that red bar at the channel upper limit, with a stop above the high of that bar. I'm resisting the urge to overanalyze in hindsight and try to find limiting factors that could have kept me out of the trade, or had me taking profits while I still had them. That seems like cheating because I'd only be doing it because I've seen how it turned out. The only honest thing I could say is that since it came after a significant down move I could have had a closer target. I could have viewed this as a potential second leg of a measured move down and had a profit target there, rather than at the lower channel limit. But I still would've been stopped in that scenario. The second trade was the long inside the yellow up channel. It looks perfect in hindsight, but it's not easy at the right edge. I had to redraw lines a few times as PA evolved. Like the first yellow up channel started out as an ascending trendline. Which I changed once just before 9, and then modified into a channel shortly thereafter. On the second red down channel I initially drew the upper limit across the wicks of the 9am highs. Then after my short entry bar at 11:45 appeared, I questioned whether to take it because it wasn't quite at the upper limit. But realized if I drew the line through the wicks of the 9am highs, that would make it a direct channel hit.
I used to think that often, "too low to short" or "too high to buy", but found that there's no harm in taking the risk if the setup is valid. The scratch trades or small losses are far outweighed by the times when you're on the right side of a measured move following a huge trending move where you thought it couldn't go much further in the same direction. It never seems easy at the hard right edge until you've traded these setups so often with success that you simply "leap and the net will appear". What's easy for inexperienced traders? Shorting up trends and buying down trends. What do most inexperienced traders do? Lose money. What's difficult for inexperienced traders? Buying/selling pullbacks in a trend, buying high/selling higher, selling low/buying lower, buying or selling breaks out of consolidation in the same direction of strong previous move. Where's the easy money and more of it? In the direction of a trend. A trend by definition is higher lows/higher highs or lower highs/lower lows. How do the highs get higher or the lows get lower? By way of a move up or move down that's larger than the pullback move. Since there's more potential profit in a larger price move, there's more opportunity for success.
I think I read somewhere that you use IB as your broker. If so, have you tried using hotkeys instead of DOM to enter/exit?
Not answering for NoDoji, just my own opinion: what I have been doing is to pick one time frame, and try to identify the conditions in THAT time frame. If the 5m is trending up, trade that, even if 60m is overall down. Rarely will all time frames daily through minute line up and if they do it will be short-lived. If your main view is hourly, trade the hourly trend. And so on..
Simple yet powerful logic. IIRC, it was bighog (or maybe it was you) in your journal who said, 'if you can time entries well enough to fade trends by going with the pullbacks, why can't you just flip that and time trades in the direction of the trend and go with the flow?' (paraphrasing there) Especially on big moves as are common in oil, just entering in the direction of the trend, it's quite hard to lose large amounts. Conversely, when I have tried to fade strong trends, I have had to claw and fight for practically nothing, and it's so easy when fading to take lots of heat on a trade. It's like riding a bike uphill vs coasting downhill.
Well stated. Resisting the counter-trend urge and learning to wait for retracement to fail is imperative for success. ESD