The most profitable price action environments (defined trends and defined ranges) are the most difficult to trade. Trading education companies, authors, web sites with free information, and experienced profitable traders all provide instruction for how to profit from these environments. Someone recently questioned why any profitable trader would give away their trading methods, thereby creating competition. From reading this forum over the years, the consensus appears to be that anyone teaching a method or writing about a method is a loser who’s trying to profit from selling education to newbies or is providing misleading information to avoid creating competition. I’m sure there are plenty of strategies where competition or the very revelation of one’s edge could dilute the edge. Price action is not one of them, which is why advanced and detailed education for the technical analysis of price action is available on the cheap. Price action allows traders to run with the herd when conditions favor the herd (defined trend) and to fade the herd when conditions favor the predator (tradable range/chop). The main reason why most retail traders lose is because they are not prepared. They’ve never taken the time to learn about profitable trading methods and convert such methods into a personal business plan for trading. They have no idea how to apply methods of trading that places the odds of profitability over each series of N trades in their favor. However, there’s also the paradox in which traders who are fully prepared technically, who have everything necessary to trade including a profitable trading plan, simply fail to execute their plans. The reason why most of these traders, many of who have traveled very far along the path toward consistent profitability, fail is because profitable trading “feels” very counter-intuitive at the hard right edge, causing the ill-prepared to gamble their capital away and causing the well-prepared to second guess the methods that work so beautifully when applied after hours with no real capital at risk to invoke emotion-driven behavior. This morning in crude oil (CLH4) price catches the 60-min shorts off guard in pre-market, finding ready support at 96.00. When the pit opens price has retraced the entire move down, breaks the shallow descending trend line across the pre-market highs, and then breaks through the overnight high as well. At this point who’s profitable? Who’s in pain and nervous? The price action has signaled the early stage of what may become a well-defined uptrend and the bulls have the upper hand, monetarily and psychologically. Now look at the following charts and compare the experienced price action trader’s view to your own.
I left the training wheels on this one (the pre-market shallow trend line resistance that commonly acts as support following a breakout). The wide green bar at 7:02 is a price containment bar and as long as the low of that bar acts as support, there’s no reason to exit a long or initiate a short position.
Oh, oh, it’s a lower high! I can short here with a 10 tick stop, so it’s a low risk trade! If you’re looking for shorts, that’s what you see. If you’re trading with your friend, the trend, you see triangle consolidation at highs and the chance to get long with the same 10 tick stop and even lower risk because when trading in the direction of a trend, you not only have the R:R ratio in your favor, you have the directional odds in your favor. There’s measured move potential here, with a M.M. target at 97.41.
When I posted that M.M. target for the last setup were you thinking something along the lines of, “Are you nuts?” You’ve likely been shorting and may even be under water. Now you’re looking at a deeper pullback off the measured move zone and maybe you chased it a little, got stopped out (if you place really tight 1-min bar stops) and chased it again, or you’re the second mouse short and looking at a bit of green. Maybe you’re thinking, “I’ll get it all back on this reversal.” If you’re looking for a reversal instead of waiting for a valid reversal setup to evolve, you’re missing the fact that you can get long off this pullback with that small 10 tick stop. It’s not as juicy as the last two because price has completed a measured move, and the pullback here is deeper, having breached the lows of a couple previous uptrending bars, but trends rarely reverse quickly in a V formation; they far more often than not retest the previous extreme.
If you want to attain that dream of profitable trading, learn about price action and build a plan based on environments where the odds of a strong directional price move in your favor is above average. The education is cheap, the work is hard, the mindset may seem insurmountable, but the reward is worth it.
How do you trade the rest of the day from 7:10 until 11:30 Pacific Time? I can see how choppy & range-bound it was now that it's all hindsight, but at the time it's actually happening I see setups & many trades to enter & get stopped out on
At 7:10 PST the trend is still in play. A pure 5-min trader would be buying the break of the 7:15 bar high. A 1-min trader would be buying the 1-min 20EMA or a break of the 7:08 bar high if comfortable with a stop loss below the 7:01 containment bar. You'd either hold for test of the high or scratch when price got choppy. During the 8:01 PST bar there's a failed breakout of the HOD. That's a signal that the trend is losing strength and price will either consolidate (chop) or set up a reversal signal. If you have experience trading in this environment, then you wouldn't get hurt trading either direction following the failed breakout of the last high. If you don't have experience, trading rules, and/or positive expectancy in this environment, then you should wait for a reversal setup (5-min EMA is falling and price pulls back up to it from at least 10 ticks below it), which doesn't happen until the 10:21 PST bar.
After an about 140 tick move I'd expect a consolidation or possibly a reversal. Price has also moved into TL resistance on the hourly so I'm cautious about longs. A possible long attempt at 7:21 stalls so then I'm looking at the hi/low of the 7:05 5 minute bar. If you're me you do nothing until the range breaks. If you're ND I'm guessing she has the tools to scalp with in the range. Potential trades for me are a range break out or failed break out of the range. Interesting day because it turned into a range with in a range. whataya think ND. am I close ?
I scratched the 3rd setup I posted after giving it 2 chances (I had somewhere to go) and I was out for almost 4 hours, so I have no idea what I would've done. I'll probably do an analysis of how my rules would apply to the PA during that time. At 10:27 PST I had a short that honored a micro channel to the downside, scratch. At 10:51 PST I had a long trade that failed to test the HOD, but I got a decent scalp out of it.