This problem can be mitigated some what by context discernment coupled with averaging down. The latter being “fighting words” in the cosmos of most traders. What must be understood and accepted is that there are NO perfect entries or exits. The concept should be relegated to the dustbin of the guru’s malarkey. It is an endless search. About the time you think you have discovered a perfect bull entry a massive bear will appear on the scene and crush it to smithereens leaving your head spinning like a saucer on a finger. What is important is context. Context is important. Charts show context. So charts are ...........well you get the idea. Any immediate action will be meet with a reaction. One side will have the upper hand and win but ONLY for a bit. An analogy are political elections. One side wins for a bit then the side wins. Some sides win by cheating ROFLMAO. There are democrats and there are republicans. There are lefties and righties. There are centrist. There greenies. There are commies. In trading the bullish and bearish INSTITUTIONS are the Republicans and Democrats. Always throwing their weight around moving the market to and fro. One side wins a bit then the other side wins a bit. The public are the retail traders. Their vote means diddly squat. ROFLMAO at least nowadays. Looky ...the powers that be move the market not the retail centrist...moderates...commies...greenies. The powers that be in politics....institutions..big money...tech...courts...social distress...you name it can probably be found exerting it’s influence. TRADING IS POLITICS! Politics is trading! One side wins a bit then the other. It has been said “it matters not who votes it matters who counts the votes”. The tabulators of votes are you and I. The mechanisms we use are our strategies and tactics in trading. As traders, so to speak, our voting tabulator machines can be accurate or they can be off. They can even be rigged. They can be hacked into. Someone is always trying to sell us another tabulator.......we should always ask “where did the darn tabulator machine come from? Where was it manufactured? Why should I buy it? Why should I use it?”.........ROFLMAO SOOOO......no matter how great and precise any setup is or how many times it proves to backtest out NOTHING IS MORE IMPORTANT than the CONTEXTS in which that setup is occurring and taking place.
Yep, aside from momo stocks, markets trend because the institutions are trending them. Fading that is stepping in front of a train. The impulse is felt by most beginning and developing traders, we've all tried to be a hero by picking tops and bottoms. Inflection points give clues but they are not understood or recognized by the amateurs. There are those, volpri among them who can scalp against the trend on corrective reactions but NOT recommended for the developing trader.
One can also scalp with trend which I do a lot also jumping in and out in trends locking in profits. Such a mechanism can lead to compounding my efforts, and doing my part to help the brokers make a living so they can feed their families and buy new fishing boats...take cruises...and upgrade housing. Kinda like supporting the local businesses. LOL.
Scalpers face 3 choices everyday: go with intraday trend, against intraday trend or sideways. Knowing how to correctly identifying these conditions is the key to make money.
Let me to show a few concepts. Exact entries are made with the best intentions but are actually hard to pull off live. Even after back testing. Here is an example on a SIM taken this morning to illustrate that concept and a few others. IN MES or Es for that matter we will look at 2 charts. A 5 and a 1 min. The latter shows what was taking place in the former. Look at the first trade to the left. Downtrend from 8:45 a.m. OK say see the bar where 4 entries short were made? The first entry was made at the bottom of the bull doji bar. However, at the time it was made it was a bear bar appearing to continue the trend of the previous bear bar. So I take an initial short. It goes against me. I add again a second short entry. Why? Look at the context from 8:45. It is bearish. I am betting this is not a reversal but simply bulls pushing back i.e. the other political party winning for a but ROFLMAO. It continues against me on that bull doji. I add again for a third entry short. Right at the close of that bull doji I add for a fourth time, again short. I see the close of that doji and I take note it is below the high of the previous bar. That is GOOD for my averaged down position because while the bulls are trying to reverse the trend from 8:45 they could not even push the price above the previous bear bar. The previous bear bar is a smaller trend on a say a 1 min chart. They couldn't even get it above the smaller trend much less the large trend from 8:45. So now it is a matter of waiting. I am short 4 entries. Averaged down and the guru's (the average down never gurus) are screaming NO NO NO. By bar 10:20 I have a profit on my last 3 entries and I am losing a little on my first entry still. But I could have exited right there with a profit. I chose not too. BY bar 10:50 I could have exited with an even bigger profit but still chose to hold. A PB occurs starting on that same 1:50 bar. So I now have to endure some drawn down. The (never average down gurus' are hysterical with joy..we told you so!!!!) Now observe, that by bar 10:50 and 11:00 we can see we are accumulating a lot of sideways motion. Still not quite enough to label it a range (I like to see 20 bars for that) but it is enough to label it a protracted PB of the 8:45 trend. Further more, the bars are overlapping. Up then down then up then down. I am in money I am out of money. This is typical of a trend that is evolving into a range. As a scalper I can make a decision. I had two opportunities to exit with profit on 3 of my entries and lose a little on my initial entry. I see clearly- sideways behavior. Bulls and bears are fighting it out. Bears want the 8:45 trend to continue. Bulls want a reversal. It could resume the 8:45 trend down or it could keep going and morph into an actual range (20 bars sideways). So what do I do? Well as a scalper I just decide to add another entry short near the top of the sideways move (which I do on bar 11:10 so now I am short 5 entries) and then try and get out on at least 4 of the entries with a profit on a subsequent move down, towards the bottom of the sideways action. I may BE or lose a little on the initial entry, but that is OK.. The move down towards the bottom of the sideways action gives me profit on 4 so So I decide to "grab" them profits and lock them in which I do on bar 11:20. Ok it may go on down but if it does I can enter short again but I have locked in some profit on 4 entries and lost a little on my initial entry. So I wipe my sweating palms...calm my palpitating heart...and await another entry while the "never average down gurus" are crying a tear in their beer cause they got stopped out. Look, the odds slightly favor that the trend will continue down from this sideway PA but once we get 20 bars sideways those odds are about even 45/55 that a BE can be north or south respectively. But I decide to get greedy and "grab" them profits and see what happens afterwards and at the same time make the brokers happy (they call their wife and tell them "get the grill ready for bonafide angus ribeyes tonight.") So, all this yapping above to explain and show how precise entries in real trading are an illusion (since none of us really know what the market will do, 100%, that is) but to also illustrate there is a way to mitigate early entries or even mistaken entries. So now on to some other concepts. Look carefully at the 5 min chart and in particular the bar where the 4 entries averaged down were made. Notice the close. It is below the previous bear bar. This is called an implied PB. To use Mr Brooks terminology. Maybe he won't get mad? I do try and encourage folks to take a look at his materials. Only because I think the man knows how to trade and his take on trading PA is very useful (although it takes a long time to learn and gobs of practice). Ok back to an implied PB. First, of what is a regular or actual PB? Well it is when the high or low of a bar goes above high of the previous bar or below the low of the previous bar. Now look at the bar with 4 short entries. It closed with NO actual PB. However, a PB did take place. How do we know this? OK the market goes down then back up and closes well above it's midpoint forming what could be labeled as a doji but it's high never went above the previous bar. What is a doji or rather what does it mean? It generally is a 1 bar trading range depicting that bulls and bears are about equal in the pressures they are exerting on the market. In this case it is a bull doji so on THIS particular doji bar the bulls are slightly stronger. But we must not forget the context...namely that bear trend from 8:45 plus the continuation of said trend on the previous bar. "In a bear trend a doji or even a bull bar (whether doji or not) that does not go above the high of the precious bar is an implied PB" Take a picture of that..clik...clik now it is in your mind. So, what is an implied PB. In this case it is a bull doji (small body) that closes above it's midpoint and it's low and it's open, BUT below the low of the previous bar. Why is it implied? Well it is not an actual PB on the 5 min chart. BUT...BUT...but...dial down to a 1 min or a 2 min chart (which I have graciously provided and you will see in the circle that it is actually a bonafide PB on the smaller TF. I also show on the 5 min an actual PB on that TF and how it is a deeper PB on the 1 min TF. Now look at the third circle. Is it an implied PB? It certainly is and it is taking place near the top of the sideways move. So right after it's close I am (Johnny on the spot) and add another short entry. That is I average down again! The gurus (never averagers) are having heart attacks. I figure the odds really favor another move down to where I can exit my averaged down 5 entry trade. Which I do on bar 11:20. I wipe the sweat from my palms...maybe get me a beer..or go for a walk while the gurus are all confused and have their tears falling in their beers...bang..stopped out....wracking up another loss...all because they wouldn't average down and won't grab profits when they can in a sideways move. Enjoy my little story. Better practice it on a SIM.
Interesting. What was your stop(s), if you don’t mind me asking? Because it seems risky adding to trades as they go against you (lower probability of going your way), but what do I know?
Ok concerning stops. My initial SL is 2 to 3 ticks above high of bar 9:50. Which I will happily move to 2 or 3 ticks above bar 9:25 before I will yell uncle and throw the towel in..followed by then doubling up my previous size reversing directions to long. Thus getting my loss back in short order and back in the money. There are logical mathematical reasons for initial SL placement and the "give" up point but I won't get into that right now. Nevertheless, what I watch more closely is my ACTUAL SL. That is how much the market went against me before it went my way. My actual SL (what the market actually went against me After I build my 4 entry position mentioned in the above post that was 1 tick above bar 10:55 which was a small adverse move and at the top of the developing range.
And here is what happened the rest of the RTH's session. Made some annotations. Study really good. Think deeply. Close your eyes ..see it..take a mental picture...clik..clik. Now it is yours! P.S. Don't ask me if I traded the bear channel and the range at the bottom. I would have but I was too busy eating..typing up my earlier posts with clear explanations (I might add). Then I had to make annotations and finally download the EOD chart drawing in everything and make all the comments and annotations therein on the chart just for you and I am 65 and I type with my fingers so go figure!! So there is the scoop. Like it or not.