It is 10:43a.m. We have a BO to upside. It is important to see how the last bar closes. To see of FT is good. I have marked the BO point and the Gap (box). Lets see if price holds above the BO and has more FT. If so I will then look to go long expecting a second leg up as the opening gap closes. But if it trades back into the range then I will consider averaging down on shorts. At this point if I just look at the chart with a glance it looks like confusion. Usually confusion means trading range behavior. I could take a chance and short. Will I? Not sure yet.
Anyway I am back. Ate breakfast and showered. It is now 12:10 central time. I did short and averaged in and will post the snapshots of averaging in "stage by stage." First or the initial entry 1 contract MES. Note the red box. Second entry average in short. See red box now 2 short. Third entry. Now 3 contracts short. Fourth entry. Now 4 contracts short. See red box and red line. Next fifth entry and sixth entry. Now six contracts short. see red box and line. Also at this point I show the orders as triangles. So I am short 6 contracts averaged down. Lets see what happens. OK here is what happened. I exited all contracts with a profit. See green triangle as it is the 6 contract exit at one whack and at least a tick below the initial short contract entry to cover commissions on that initial contract. Commissions 11.76 Round trip for all six. Profit is $71.25. Net after commissions is 59.49. Peanuts yes. But think size in MES (maybe 5 or 10 contracts a lick on each entry) or just go to ES and save on commissions ratio to profit ratio. The problem is traders with small accounts cannot afford to average down with ES but they might could with MES. I hope these chart and the narrating live of the PA, as price action unfolded, showed the process, and my thinking behind averaging down.
I gotta go as I have something else to do. In summary, to considering averaging down begins with looking at larger time frames such as a daily chart along with some 24 hour or overnight charts such such as 60 min, 15, min, and 5 min charts to see price patterns on those charts that will help a trader identify the pressures in PA and get a perspective on the larger TF. Then one looks at the RTH (regular trading hours chart) for the immediate context and to also detect price action patterns that are conducive to averaging down in and doing so within the larger perspective. Today it was an averaged in short trade I did. This afternoon it may be an averaged in long if I were to continue trading. I say that because as price moves sideways for a long time 50 or more bars the odds become 50/50 regardless of the larger perspective. So, opportunities may come to fruition for averaging down longs before the session ends. Who knows? Only time will tell. Or it may just be best to range trade without averaging down in the afternoon. Nevertheless, my point is being aware of the larger contexts can give some perspective on the viability of using averaging down tactics. I hope this exercise elucidates and does not obfuscates the issue. Volpri
Ok I am back from town running errands. First thing I see standing out to me on the chart is I missed the move down to the bottom of the range (red arrow). I had to run errands so I just exited my 6 contract “averaged in” position at the green triangle. At any rate my position was exited with a profit on all 6 contracts. Had I been able to have been here I most likely would have held and captured a good amount of that down move thus making a handsome multipoint scalp. I wanted to show how I averaged down successfully and could not just leave the trade on as I went to town as it could have just as easily gone back up and in such a case I would not have had a closed trade to show you guys. At any rate my exit was profitable and that is the example I wanted to show. However, the move down afterwards does illustrate just “how” profitable the process can be. Just to summarize today. It is imperative to look at larger TF’s BEFORE the RTH’s open to get a feel of who is winning overnight in the markets, bears or bulls. So, just before the open we looked at daily chart. It was bearish = weakness. Then 60 min overnight chart channel down = weakness. Then 15 min overnight chart is channel down = weakness. Then 5 minute overnight chart = channel down = weakness. Finally we look at RTH’s 5 min chart = price gaps down=weakness on the open (see red gap on this chart below) and price begins a sideways move that by 9:30 a.m. central could not still be called a range for it needs to have at least 20 bars to label it a range. But price is not going anywhere and confusion reigns. Confusion usually means RANGE. WITH ALL this weakness, on all these time frames, averaging down on the short side is safer at the moment (9:30). So we wait for 20 bars sideways. We get it so we are now in a range. Range means short at top and cover on moves back towards the middle or bottom (and ok to “average in” if the larger contexts supports it, and it did in this case). Range also means go long low and exit on moves back towards the middle or top of the range (and Ok to average down long if the immediate context overrides larger context (i.e. 50 ..60..or more bars sideways renders a 50/50 any BO of any range can go in direction.) In this case 57 bars into the range and we are at the bottom after red arrow drop. So, an opportunity did present itself to go long at the bottom of thebrange and even average in there. See blue circle. Now what happened? Well by that 20th bar from the open we have an established range. The larger context (different TF’s) all indicate weakness. The immediate context (5 min RTH) indicates weakness with gap down open. And the immediate context shows that by 10:10 a.m. price is now in a range however it has been hugging the upper top of the range last 10 bars or so. Now the basic idea or concept is to begin shorting and averaging in near the top of the range. However, since price has been hugging top of the range I want to see some immediate weakness before I start shorting. I want the immediate context to show me some weakness that lines up with all those larger contexts. But instead we get a BO of the range on the top end around 10:25. The low’s of next 4 bars stay above the BO point and a BO gap (grey box) forms and has not completely closed. However PA is also showing me that the 10:25 BO has little FT and has a bar with a good sized tail on top. So I am just waiting to see if price goes back into the channel. It does so on that larger bear bar (28th bar from the open) and that is the weakness I am waiting for. The bulls will likely push back as they have kept price hugging the top of the range and they want a bull BO that closes the opening gap of 8:30 a.m. But I know bears are pushing too because of that larger bear bar and the previous bar with tail on top and in addition we now we have a failed BO as price is back in the range. So, by the close of that bear bar the odds are higher that price will sometime during the session go back into the range enough for a profit. So, I am now convinced to start shorting and averaging down as bulls push back against that bear bar. Plus further weakness is confirmed as we have three bear bars in sequence (two others before that 28th bear bar) AND bears forced price below the 50 SMA AND the 20 EMA on those three bear bars just before my initial entry. So, I start shorting ..and get my 6 lot position all averaged 6 bars later and set my stop above 3342 which will be above the high of the day and just wait for the likely drop. Larger contexts all confirm weakness and now the immediate context also confirms weakness. The area where I averaged down was just bulls pushing back against those 3 bear bars and their push will likely fail because that previous bar with the tail on top indicates sellers are probably right there. So, I am good to average down. Once I have my “ position on” the goal is to exit it, if possible, with a profit on all the contracts. I did so. Unfortunately, I had to leave and so closed my position out and entirely missed the larger move down. So, there you have it. How to average down when the CONTEXTS (plural) favor doing so. Starting at RTH’s open the odds favored shorting and averaging down on the short side. Late in the session averaging down was feasible from the long side as the range was prolonged more than 50 bars. Now considering all the larger contexts lets say price in the immediate RTH’s chart was not a range but was instead a BEAR TREND from the open. What would you do? What would I do? I would be averaging down short on every bull PB and covering lower as the bear trend continued. The larger contexts and the immediate context supports employing such tactics. If a PB became larger 20 bars or more I would no longer consider it a PB but a range and would trade it as such. Or if a reversal took place in the bear trend I would abandon the shorting averaging down tactic and start using reversal tactics. Something I have not yet discussed in this journal. Ok lets say all the larger contexts showed strength and the immediate (5 min RTH) context showed a range. Where would you consider employing averaging down techniques at the bottom or at the top of the range? What if the immediate context was a bull channel from the open with and opening gap. How would you employ averaging down? Print all these charts out from today and study them thinking through my posts and I am sure you will know what to do as concerns averaging down in weakness or in strength. Finally, remember the goal for averaging down is not to rescue a losing trade but it is to add to a losing trade thereby getting in at BETTER prices and create an opportunity to make MORE money based upon a trade entry premise that has it’s foundation in contexts larger..and immediate. However, as a by product you will many times rescue a losing trade and an in addition an added benefit can be a high win rate which is a great psychological booster and just makes a trader feel good about his judgement and decisions. It is great to end the day on a positive note and ahead moneywise. Never average down to just be attempting to get out of a loss. That is a losing strategy in the long run. Because one day you will average down to bankruptcy. Any averaging down must be done with sound principles and be based upon a premise. Even then you can be wrong at least 40% of the time so a trader also needs an exit strategy when he is wrong and a recovery strategy to promptly get back his loss he incurred by dumping an averaged in position. And he needs to recover the same trading session if possible. That usually mean some sort of doubling or tripling up in the right direction after taking a hit on an averaged down position. A last note: It is best to not average down in the last hour or so as you may not have enough time left in the session to get out with a profit. Best to average down between 8:30 a.m. and 1:00 p.m. Hope this helps somebody in their trading on a sim LOL. Study the concepts well and practice over and over on sim. Disclaimer: I ain’t advising anyone to do this with real money. That is totally your choice. Be aware you can lose all your money and maybe your hat and pants trading futures. It is alot of work to type this stuff up AND ESPECIALLY to make snapshots and live comentaries and post charts live AS the market unfolds, like I did today. I hope you guys find it interesting and appreciate it. I am getting old. 65 next month. It takes me a long time to type all those thoughts out that are in my head. Enjoy!
I think your trade took huge risk. You were just lucky. You also violated Brooks price action rules. If you though the large about 10:40AM CST bear bar was a trend reversal, you should have entered a sell stop below that bar. It would never have been filled. Also no trend line break. If you have waited for the large bear bar about 11:35 and entered a sell stop below it, you would have collected 12 points with no risk and no heat. Brooks says your trade was 70/30 against you. If you though there was another trend reversal at around 13:10, enter a buy stop above one of the H1 reversal bars. I think Brooks price action is good. I can't concentrade well enough to be a day trader, though.
It wasn't a trend reversal. It was a failed BO of a Trading Range. The trend reversal took place 3 bars after my last short entry. That was what brooks calles a MTR (major trend reversal). In particular it was a Lower high MTR. Those usually have two legs down and it did. I was averaging down in a failed TR BO. A major trend reversal needs a break of the trendline and price preferably trading thru the 20 ema showing (weakness in this case) then a resumption of the trend to test the previous high THEN a bear signal reversal bar. Followed by an entry bar next. This is a description of trend reversal per brooks and I am showing exactly where it happened on the chart. My trade took place BEFORE this action and I was trading something else not a reversal. You are trying to treat my trade as a reversal and it was not. In addition, in my post I explain why the risks were small.
In essence I did take the LH MTR but was already loaded up with 6 contracts when it took place. I just exited on the first leg down of the LH MTR as I had to go run errands. However, when I took my trade the LH MTR trade had not taken place and I was taking another trade. When I started trading the LH MTR had not yet come into being. My goal was to show how to average down not how to trade a MTR. I was trading the TR phase of the market cycle and using tactics for doing just that. I mean if you look at it there was even a HH MTR before my entry it failed after one leg down and that HH MTR WAS before the LH MTR that I point out on the chart. While technically that prev HH MTR could be traded but I would not have traded it as such for trend the length was too short and within a forming range to have good probability of two legs down. Apparently you are against averaging down which is generally the viewpoint of most traders. But that doesn’t bother me. Everyone can think what they want. I just do it and do it quite often and in a variety of circumstances. And I have plans in place when I am wrong. Luck has nothing to do with it. It is well thought out and based upon sound concepts and principles. Nevertheless, it will sometimes be wrong simply because there is always at 98% of the time at any moment uncertainty in the markets. There are too many variables known and unknown that can happen at ANY time. But since the market is moved by institutions and they cannot hide who is winning at the moment as the chart tells the truth and if we are able to read PA we can come to an aprox probability number and trade on that. When wrong we have to just realize it and go where the market is going. See, my premise was, when I entered that first trade, that the market was going to go down into the range so I had no qualms about averaging down positioning myself for that expected move south into the trading range. After I considered the overall context. Also we need to understand that in broad trading ranges you can have all sorts of tradeable PA patterns..triangles...MTR’s ..flags..wedges. A trader can trade the patterns and or the broad range. In tight ranges it is a dead end alley trying to trade patterns. Have a great weekend traders.
See what I mean? But to me this is a weak HH MTR and I would pass on it. To me the trend up looks more like a vacuum rush to the top of a forming Trading Range. It barely reaches thru the high of the opening bar.
Perfect entry requires knowledge; if you dont have the knowledge of when a trade should be entered, the skill part becomes irrelevant. You can have all the skill in the world but if you dont know exactly when to execute your trades, the market will eat you alive at some point.
That is the trouble with Brooks' price action. There are multiple interpretations. Do you not agree it is better to enter using a stop below the bar around 11:35 so the market is actually moving in your direction? Here is how I see the pattern. Common reversal after down opening with a double bottom at 8:55. Good trend up with 3 legs culiminating with a reversal bar that was also a double top around 11:35. Trading range from about 13:15 to close. I think in reality you were lucky because around 11:30-12:00 there was some negative news on worsening Corona virus epidemic. Averaging in is good. Brooks advocates it also. What would you do (close with a loss?) if the 3rd leg of the up trend had contnued? Brooks says probability of trend continuation after only 2 (or 3) legs is a least 60/40.