Knowing when to change directional bias at the right time for a profit

I met a reduced target on the short from earlier for a profit of 10.75 points, and as I said, it was placed where it was because of the high probability of support at that level. When price trades are PDL or PDH you need to recognize which side of the market is controlling. Here is an example of how you need to know when to switch direction and stop pushing a side of the market; basically, do what the market is telling you.

How to hold on to a trend trade and not exit early: Major support breaker signal

I've been really busy with things lately so I haven't had much time to commit to the site. I figured I would post today though since I decided to trade today and take a break from my other project.

Its important to know when to enter a trade, but its even more important to know when to exit a position. The major mistake of most traders is exit too early on their profits and staying in too long on their losses. I make it a point to cut losses quick and keep them small. I also try to hold a trade as long as possible, until its invalidated. Here is an example of a major support breaker entry signal with a max target at previous day low. If you look, I'm risk-free in the trade now, and have a very large target. This target will get adjusted if certain conditions occur, which are mentioned on the chart.

Counter Trend (CT) trading the high probability way, be realistic with target and risk

Counter trend trades pose a higher risk because you are fighting the trend, BUT when weakness in a market side occurs, they became high probability; or should I say the dominant trend trade becomes low probability? It doesnt really matter how you justify it, the most important thing is to recognize the buyer or seller weakness or failure, and act on it. You want to be safe with these types of trades, and only take then when the weakness if recognized. I have a minimum of 1:1 risk to reward on these setups. I try to be realistic on how far the move may go and I assume a pullback over a reversal. For example, if I can see a pullback going 2.5 points, $50, I'll place my target there and start with a stop of $50 max. Once I get movement, I adjust it to one tick above/below entry.

HT Entry Setups: Breaker

This is a major resistance / major support breaker. The minimum amount of resistance (support) required is a double top (double bottom). You want the price structure / context to agree with the setup though, so you don't just want to be taking every single DT/DB break, you need to filter out the lower probability ones. If the breaker is at the HOD or LOD, the setup is higher probability. Like I said, you want to filter out the lower probability setups and try to only take the stronger setups. Stop starts out at 1 tick below / above entry bar. After you meet target on the first contract, you want to move stop to -1 point so that you are risk-free on the overall position. After movement in your favor of 3+ points, you want to move stop above your entry price. Worst case scenario, you are still securing a profit on the overall position.

HT Entry Setups: A1 (H1 at the EMA)

Throughout their trading careers, traders get a lot of information thrown at them. Some information is valuable other information is garbage. One trader that I feel is a very good trader and has an extremely great system is Al Brooks. I'm part of http://www.brookspriceaction.com/ which is a website of traders who trade using his methodology.

The most successful traders take the best parts from the best traders, incorporate their own ideas, and output a system that produces profit. I took Brooks' concept of H1 and L1, added my own idea, and created a signal entry from it. I call it an A1. It's essentially an H1 or L1 that occurs at the EMA.

I enter with 2 contracts. Target on the 1st contract is 1 point, target on 2nd contract is at least 4 points. Stop on both is at invalidation, max of 2 points. Your max risk on the trade is $80, but the goal is to get the 1st contract filled and move stop to -1 point then, you are risk-free at that point! After movement in your favor, you move stop above entry and then trail the swings.

When to buy the highs and when to short the highs. Structure will dictate.

One of the most difficult things for traders is buying the highs. They are worried that the market will reverse to the downside because its over extended. What usually happens is that the trader will continue shorting the highs and get cut to death buy a 1000 papercuts. Every entry is short, thinking the market is due for a reversal.

The price structure / context of the price at the highs will dictate what one should be doing. Its never 100%, but it gives you a little bit of an edge if you trade the highs using the structure.

My rules for buying the highs:
1) Fundamentals and technicals are in bullish agreement. This way, you have both schools of thought buying into the market.
2) Where are magnets? Open, Institutional Number, PDH / PDL, etc.
3) The breakout of highs will result in a value area shift. For example, you are breaking previous days high and current days high at the same time. Probability of a break of few ticks (Buyer Failure) to take out stops is very low.
4) The structure dictates that the break of HOD agrees with the structural formation. A break of trend (BOT signal) in the direction of the HOD break increases the probability of a HOD long trade.

My rules for shorting the highs:
1) Fundamentals and technicals are not in agreement / don't have support from eachother. Technicals may be bullish but fundamentals bearish. This reduces probability of buying highs and increases probability of shorting highs.
2) Where are magnets? Open, Institutional Number, PDH / PDL, etc.
3) Breakout of highs doesn't shift value. For example, breaking of highs may be forming bullish channel, moving to upper trend line. And the breakout is likely to take out the stops at HOD (Buyer Failure) and then reverse back into the range price structure.
4) HOD break is not signaling a BOT, rather its continuing the structure of range, bull channel, wedge, etc.

When to re-enter the market after you get stopped out. Only after BF or SF

It's one of the worst feelings of trading: being in a trade, getting stopped out, and then the market rallies in your original direction. When this happens, don't get upset.. do your analysis and proceed with a course of action. Did I get stopped out on a Seller or Buyer Failure? Did I get stopped out for a valid reason? It will depend. BUT if you got stopped out because of BF/SF look to re-enter.

Here's my example. I was long, knew I should be long during the trade, and knew there was a high probability that any seller activity will fail. However, I kept adjusting my stop below swings according to the plan. I eventually got stopped out on this trade on a 123 failure. Because of the failure, I looked for re-entry, knowing that if I took the short signal that just occurred, I would be holding a losing position.

IMPORTANT: Manage your stop properly, don't be exposed to large risk on these types of moves (view my 5 min charts below- $20 risk for around $100 return)

 

Trading Price Structure / Context: Bear Channels. Entering on BOT and Al Brooks A2 signal

Here is how to enter on BOT. The most important thing is your stop in this case, because you're trying to get price advantage on this move.

Using Al Brooks entry system, your initial signal was the A2 with B12 being the signal bar and B13 the entry bar (Second chart). Bull validation was the double bottom there. If you missed the initial signal, second entry was where I got in on the BOT signal.

IMPORTANT- Move stop above entry after market goes in favor. You will then be risk-free.

UPDATE: Move stop above entry to new invalidation point

UPDATE: Move stop above to new invalidation point

Al Brooks A2

Trading Price Structure / Context: Bear Channels

Here is how I trade price structure / context, specifically bear channels. If not recognized, a trader can lose a lot of money getting chopped up in a bear channel.

If you're trading WITHIN the bear channel you want to:
- Sell the highs
- Avoid trading in the middle
- Could buy the lows, but the probability becomes reduced
- Should always have your target on the other side of the channel, REASONABLE. Dont expect that you picked the point where the market will sell off or rally in your direction a million points. Be realistic. 

Waiting to trade in the longer term direction here, which is Bullish, you need a BOT signal to the long side. I don't usually take the initial BOT signal long (as I should in the wedge example), I take the 1st pullback after the BOT.

The chart explains my way of trading bear channels and the continuation into the longer term move expectation.

Trading Price Structure / Context: Wedges. How to enter after the signal. Part 2

So yesterday (previous post), I talked about how you need to recognize and trade price structures a certain way. Into the close, we had the breakout signal I was looking for. Then, our goal was to look for an entry signal, we had 2 opportunities to get into this move.

I determine move potential in 2 ways:
1) Measured Move
2) Point of Interest / Significant Level

In this case, my target was around 1) 2600 (Institutional Number) and 2) Move to PDPDL (Solid red line from yesterday / the top of the green rectangle)