If you look at the OP's initial situation you see he has a lot of "IF's" and "BUT'S". This is normal progression as a trader goes from just observing to thinking about putting money into trading. It can be a very cautious time and he is told this repeatedly by his emotions. Collectively. they are warnings whose subject is his survival. All the certain answes are always available to a trader. BUT, as we see, the learning traders does not ask the questions and, at anytime, like in this thread, the questioner is only bringing up 2 out of 3 contexts. So I refrain from filling in the picture to include all of the possibilities. I wait to do this since no one, including me, wants to cloud the picture in any way. What does it look like to start where the OP is and be at the point where a trade is about to be considered? That is why I put up a sequence of illustrations so the OP and others can see how they got to the thread's beginning and all the doubt present At the Present the OP is at one of two places. One is correct; the other is wrong. Imagine if the OP could log the train of events and always know where he is in a trend. There is a potential that this can occur for him just as it is evident to me as a reality of trafing to make all of the market's offer. In this Present, there is an absolute certainty whether we are at point 2 of a trend or whether we are at point 3 In either case we started at a peak volume on a given numbered point of a parallelogram. In both cases we headed to a volume trough. In one case we went past the trough to a peak (the reversal) and in the other case we stopped at the trough (the retrace). Volume is the differentiator DURING a profit segment. Taking on a trade at the end of a price move is a nice concept. Knowing the END of a retrace and a reversal has also just been pointed out. So we have covered the beginning of a retrace and an end of a retrace and just how volume behaves in a retrace throughout the retrace. We did the same for a reversal. Six items have been explained. What is the tooling needed for monitoring and analyzing these things? The OP has none of these tools. Questions or emotional signals say but one thing. In Behavioral Finance, path 2 is explained. The Op has to journal two topical items: emotions and solutions. His emotions cuae the journal to be openedand he writes down the emotion. Then he formulates the Behavioral Finance task: to make a reasonable change in his trading approach. The takss come down to quite a few things for any serious poster here and for any serios reader here. Each has to decide to begin to do work in the form of reasonable changes in your trading approach. you have to decide to take EVERY IF and BUT off the table as your emotions are dictating to you so to do. One case (retrace) starts on a LTL; your task is to put in LTL's; they come from RTL's so you have to do the task of putting in RTL's. The other case (reversal starts on an FTT so you have to task anotating FTT's which are between RTL's and LTL's which you have to task doing each. Both trades begin with a non dominant price move , you have to first learn to take dominant profit segments and then learn to take non dominant profit segments (or HOLD through them) after that. Before all of thsi you need to have PRV (Pro Rata Volume on your charts and market PACE on your charts to see whether PACE change or dominance change or non-dominance change is more significant. These three items are leading indicators of price. First they have to be added to displays and then you have to learn how to "read" them using built long term memory to match what you see. To keep track of what is going on you have to annotate and log what you annotate. To log you have to design a log that gives you the pre and post events for all events in order that you know and event is arriving on your log. To log into the cells of the log you have to build a vocabulary for each column of the log. You also have to have a bar clock on your screen to note the second when that row of the log was tabulated. So its a New Year and like a carpenter with 20 years on the job, you will repeat your first year on the job for the 21st time this year OR will you move forward? What I imagine is that the OP sits and looks at charts and gets more and more puzzled. My posts are called work. Work is the expenditure of energy some of which involves things happening in the mind. All to put before you what you are getting here and now. I am working at a pace that is slowed by the ET platform. To look more closely, we need to add bars and then add the formatiion of each bar for both volume (leading) price. Taking a good long look at how the mind works and how learning occurs through repetition is also a good idea.
This brings back so many memories, LOL. I finally told him a pivot is like the Boy Scouts sign, but often times I think he was not putting up the fingers on each side of the middle finger.
Trading is seldom as easy as your A's and B's, part of reason why so many lose. You have to look at the place that price is within the trend. The smallest risk/highest reward is generally right after confirmed trend change then wait for pullback, those who follow Elliot wave is entering within wave 2 or early part of wave 3, am not big Elliot wave trader, but wave 3 normally has biggest profit. As price gets deeper into a trend, risk of continuation of trend reduces and risk expands, often times near extremes, price bars expand, so you got to think "You feel lucky punk, well do ya" as Dirty Harry would say. So if your risk is going to be other side of entry bar, possible loss will be greater. One also has to look at the instrument you are trading, if you are trading a "running" market like Crude or Currencies, previous pivots work fine for stops, but if you are trading a congestive market like the ES, you can be eaten alive as this market seldom trades in hard trends, more like herky jerky. One idea is to average swings in the timeframe you enjoy, and by doing a few hundred of them, you might discern swings in ES go up with shorter range than going down, which leads me to believe my targets are bigger on shorts than longs. Another consideration is time of the day, normally most markets, first couple hours of day session are best to trade, so if one is not experienced to trade chop, don't trade after this time. Price going up does not act the same as going down and also in degree of pullbacks, so arguments for validity of direction are not the same in my experiences. There are many false moves going up cause many traders only take longs, such in trading stocks. But buying new highs/selling new lows works well in certain markets. If price does not set up to my price pattern rules, missing out on a trade, who cares, there will be others, learn to sit on your hands. Ya just gots to do some homework.
Every pull back you buy is a break out you're not buying. The "buy on a pull back at a discount" ignores opportunity cost. I'll unpack that. If a base runner gets picked off and the next batter hits a home run, the fans will say that the pick-off cost the team a run. But that commits the fallacy of the predetermined base hit. Likewise, when a stock declines or pulls back, the trader says "this stock is determined to go higher, so now I'm getting it at a discount." A discount to the higher price. Buying on the pullback is a version of the predetermined base hit fallacy. You see a pull back and say "this stock is going higher, so I'll get on board now at a discount." This kind of thinking ignores two factors. First, that price contains information. When a stock pulls back, it is telling you something, that the stock is weak. If you don't believe that, you're falling for the predetermined base hit/half off fallacy. Second, it ignores opportunity cost. While you're stuck in a pull-back, other stocks are breaking out. Every pull-back is a break out you're not buying. By the way, the "buy on a pull back" theory shares with the "scale in and out" theory the allure of false sophistication. It sounds sophisticated but in reality it is really a false economy.
What a fascinating piece of fiction. When you buy/sell a pullback shortly after a change in price wave that has survived the first test, then what you are doing is placing your entry close to your stop. In the event of failure, not only will your loss be contained and small but there will be plenty of action on the other side thus preventing slippage.
NoDoji: http://www.elitetrader.com/vb/showthread.php?s=&postid=3016224&highlight=high#post3016224 "When a very strong stock gaps up on good news, you buy the first pullback. The previous high will be tested and if it breaks out, it's icing on the cake." See how "the previous high will be tested" falls into the fallacy of predetermined higher prices?