When your trading instrument is sufficiently volatile (e.gs. NQ, YM, RTY, HSI), ranges tend to behave as one-legged trends with very brief pullbacks.
If range is broad enough sometimes a trader will see even 2 or 3 legged trends and triangles..wedges...etc. all tradeable patterns depending on where they take place within the range and within the larger context at the start of the range.
Looking specifically at your trading style, why would you ever want to hold onto a position once you've seen a double top or bottom area of price (tests which are close to each other) and you've lost price to one side of your moving average? It is a bad sign when you get 4+ sequential opposing bar closes to an intended direction and you lose price to your favored moving average. Look, I get it. You don't like to lose so you try and average out of a losing trade because you have 10 times more bullets in your micro e-mini arsenal and so can. However, it doesn't matter what the trading system is, the inescapable reality in trading that books and forums don't discuss is: High winning pct systems (70%+) converge to 1:1 RR (reward to risk ratio) and worse. Moderate winning pcts systems (40-60%) converge to the 1.5-2.5:1 (reward to risk ratio). What will blow any of this up big-time is averaging against a position by expecting the market to "get you out with just a scratch" on a retrace.
Price probes down for buying then up for profit. Bears are pushing it down bulls are accommodating. Then bears give up as bulls push up.
Looking at this daily chart what will the next session most likely be like? 1) More PB? 2) PB ends and price heads north? 3) BO south? 4) Trading Range?
Out of the country for a while. Hope to be back to this journal with more annotated trades perhaps latter part of jan or in feb 2020.
Averaging down for the express reason of not losing IS a losing strategy. But averaging down in the right place within the market cycle very often leads to profits and does have the added benefit of not losing on a trade but turning a losing trade into a winning trade and often a very good winning trade. I don’t use MA’s like most do. Any DT or DB or any other test or pattern (including triangles..DT’s DB’s ..wedges..sequential bars etc) should be interpreted and directional probability, risk, and reward arrived at through the larger context i.e. the market cycle and previous cycles. For example in a range (market cycle) that is fairly broad a trader often will see a race to the bottom or top with a BO that fails and price traded right back into the range. That race to the top or bottom can be made with sequential bars that oppose the eventual directional probability. Why? In ranges 80% of BO attempts top or bottom fail i.e. no FT and price goes back into the range. This is true regardless of how the move to the top or bottom of the range was made i.e. sequential big bars or smaller bars with pb’s. The probability is more often than not tied to the cycle not the type of bars or the moving average. For instance, in a bear channel (which normally functions as a bull flag) averaging in shorting from the midpoint of the channel all the way to the top (regardless of the type of bars ..bull or bear...sequential or not...small or large...and regardless of MA..etc...can be a good tactical thing to do IMO simply because the contextual pressures are down and the bears are winning. Nevertheless, bear channels are bull flags on higher time frames and probability favors an eventual BO to the top side WITH FT so one has to keep that in mind and if it occurs switch tactics and go with trend. If a bear channel breaks out to the downside and has FT then the UNLIKELY event has happened (i.e. it did not function as a bull flag would be expected to function) and in such a case I am looking to short for a MEASURED move down. When an unlikely event happens I am alerted to measured moves happening. Another example. In tighter bull channels wedge tops will fail over and over and price keeps going up. It is a tactical mistake to think that just because there is a wedge top price will go down. In wedge tops a trader is looking for price to break south. In tight channels up the unlikely event (i.e. wedge top failing) happens. ALL wedge tops are failing. So what do I do? I go long for measured moves. Such PA can cause traders to think that patterns are useless in trading. No they are not. But whether they follow the probable outcome they tend to indicate depends much on the larger context in which they are found to be located. Wedge tops in bear channels will more likely be predictive, indicative, or anticipative ...LOL ...(now that I have covered them fighting words) of coming PA....i.e. south. Wedge tops in Broad bull channels are more likely to act as a successful wedge top...again south. Wedge tops in tight bull channels tend to fail multiple times thus indicative of measured moves in the trend direction. The unlikely event for the wedge top took place. Wedge top. Price should go down, but it doesn’t. Therefore I look for measured moves up. Bottom line all patterns fail and all patterns succeed. Context usually determines if they will succeed or not. And patterns form because of pressures in the market. Pressures can be deduced from the individual bars (bear or bull and size and previous bars..etc) but those pressures and the resultant PA patterns (triangles..flags...wedges...etc) all need to be interpreted as to their location in the larger context or market cycle. Their probability of being successful or not is tied to context. Many traders claim PA patterns are at best a 50/50 proposition. I do not believe that. They are forgetting context or are not taking into account context. By successful (when discussing a pattern) I mean a pattern that leads to PA that conforms to it’s expected outcome. We expect wedge tops to indicate PA south and wedge bottoms PA north...etc
Hello volpri, I just found your journal and we talked before regarding price action concepts. The answer is 2)
Hello volpri, Please give me your thoughts on scalping using price action concepts. When I say scalping, I mean risk bigger than reward on some trades. I ask because I think I found a method I like to trade using price action where I can extract 10 ticks twice a day, but my risk is about 20 ticks. I am practicing a trailing method as well to see which on fits my comfort zone and mental when it comes to trade management.